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Unformatted text preview: slide 1 Technology, Empirics, and Policy – for Economic Growth how to incorporate technological progress in the Solow model about policies to promote growth about growth empirics: confronting the theory with facts two simple models in which the rate of technological progress is endogenous slide 2 Introduction In the Solow model of Chapter 7, the production technology is held constant. income per capita is constant in the steady state. Neither point is true in the real world: 19042004: U.S. real GDP per person grew by a factor of 7.6, or 2% per year. examples of technological progress abound (see next slide). slide 3 Examples of technological progress From 1950 to 2000, U.S. farm sector productivity nearly tripled. The real price of computer power has fallen an average of 30% per year over the past three decades. Percentage of U.S. households with ≥ 1 computers: 8% in 1984, 62% in 2003 1981: 213 computers connected to the Internet 2000: 60 million computers connected to the Internet 2001: iPod capacity = 5gb, 1000 songs. Not capable of playing episodes of Desperate Housewives . 2005: iPod capacity = 60gb, 15,000 songs. Can play episodes of Desperate Housewives . slide 4 Technological progress in the Solow model A new variable: E = labor efficiency Assume: Technological progress is laboraugmenting : it increases labor efficiency at the exogenous rate g : E g E ∆ = slide 5 Technological progress in the Solow model We now write the production function as: where L × E = the number of effective workers. Increases in labor efficiency have the same effect on output as increases in the labor force. ( , ) Y F K L E = × slide 6 Technological progress in the Solow model Notation: y = Y/LE = output per effective worker k = K/LE = capital per effective worker Production function per effective worker: y = f ( k ) Saving and investment per effective worker: s y = s f ( k ) slide 7 Technological progress in the Solow model ( δ + n + g ) k = breakeven investment: the amount of investment necessary to keep k constant. Consists of: δ k to replace depreciating capital n k to provide capital for new workers g k to provide capital for the new “effective” workers created by technological progress slide 8 Technological progress in the Solow model Investment, breakeven investment Capital per worker, k sf(k) ( δ + n + g ) k k * ∆ k = s f ( k )  ( δ + n + g ) k slide 9 Steadystate growth rates in the Solow model with tech. progress n + g Y = y × E × L Total output g ( Y / L ) = y × E Output per worker y = Y / ( L × E ) Output per effective worker k = K / ( L × E ) Capital per effective worker Steadystate growth rate Symbol Variable slide 10 The Golden Rule To find the Golden Rule capital stock, express c * in terms of k * : c * = y * i * = f ( k * ) ( δ +...
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This note was uploaded on 03/25/2010 for the course ECON 305 taught by Professor Vasyl(basil)golovetskyy during the Spring '09 term at Simon Fraser.
 Spring '09
 VASYL(BASIL)GOLOVETSKYY

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