econ305_07_Oct14

econ305_07_Oct14 - CapitalAccumulationand PopulationGrowth...

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slide 1 Capital Accumulation and  Population Growth the closed economy Solow model how a country’s standard of living depends on its saving and population growth rates how to use the “Golden Rule” to find the optimal saving rate and capital stock
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slide 2 Why growth matters Data on infant mortality rates: 20% in the poorest 1/5 of all countries 0.4% in the richest 1/5 One-fourth of the poorest countries have had famines during the past 3 decades. Poverty is associated with oppression of women and minorities. Economic growth raises living standards and reduces poverty….
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slide 3 Why growth matters Anything that effects the long-run rate of economic growth – even by a tiny amount – will have huge effects on living standards in the long run. 1,081.4% 243.7% 85.4% 624.5% 169.2% 64.0% 2.5% 2.0% …100 years …50 years …25 years percentage increase in standard of living after… annual growth rate of income per capita
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slide 4 Why growth matters If the annual growth rate of U.S. real GDP per capita had been just one-tenth of one percent higher during the 1990s, the U.S. would have generated an additional $496 billion of income during that decade.
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slide 5 The lessons of growth theory …can make a positive difference in the lives of hundreds of millions of people. These lessons help us understand why poor countries are poor design policies that can help them grow learn how our own growth rate is affected by shocks and our government’s policies
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slide 6 The Solow model due to Robert Solow, won Nobel Prize for contributions to the study of economic growth a major paradigm: widely used in policy making benchmark against which most recent growth theories are compared looks at the determinants of economic growth and the standard of living in the long run
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slide 7 How Solow model is different from  Chapter 3’s model 1. K is no longer fixed: investment causes it to grow, depreciation causes it to shrink 2. L is no longer fixed: population growth causes it to grow 3. the consumption function is simpler
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slide 8 How Solow model is different from  Chapter 3’s model 4. no G or T (only to simplify presentation; we can still do fiscal policy experiments) 5. cosmetic differences
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slide 9 The production function In aggregate terms: Y = F ( K , L ) Define: y = Y/L = output per worker k = K/L = capital per worker Assume constant returns to scale: zY = F ( zK , zL ) for any z > 0 Pick z = 1 /L . Then Y/L = F ( K/L , 1 ) y = F ( k , 1 ) y = f ( k ) where f ( k ) = F ( k , 1 )
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The production function Output per worker, y Capital per worker, k f(k) Note: this production function exhibits diminishing MPK. 1
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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.

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econ305_07_Oct14 - CapitalAccumulationand PopulationGrowth...

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