notes_macro_ch6 - MACROECONOMICS Georgios Karras*...

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Macro Notes © G.Karras 2010 MACROECONOMICS Georgios Karras* University of Illinois at Chicago * Professor of Economics; Mailing Address: Department of Economics, University of Illinois at Chicago, 601 S. Morgan St., Chicago, IL 60607-7121; e-mail: [email protected] . Lecture Draft Do not cite without permission
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Macro Notes © G.Karras 2010, p.2 ││ 6 ││ LONG-RUN ECONOMIC GROWTH 6.1. Motivation
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Macro Notes © G.Karras 2010, p.3
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Macro Notes © G.Karras 2010, p.4 GDP per capita Annual growth per (PPP US$) 2007 capita, 1990-2007 . Norway 53,433 2.6% United States 45,592 2.0 Germany 34,401 1.4 Japan 33,632 1.0 Mexico 14,104 1.6 Brazil 9,567 1.2 China 5,383 8.9 India 2,753 4.5 Nigeria 1,969 1.1 Sierra Leone 679 -0.3
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Macro Notes © G.Karras 2010, p.5 Two basic questions: #1: Why are income levels so different across countries? #2: Why are income growth rates so different? Two approaches: #1: Growth Accounting (measurement) #2: Solow Growth Model (theory)
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Macro Notes © G.Karras 2010, p.6 6.2. Growth Accounting Recall, the production function : { { { { ) , ( labor capital ty productivi r multifacto GDP real N K F A Y = Special Case: A “Cobb-Douglas” Production Function 7 . 0 3 . 0 N K A Y = Take growth rates:
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Macro Notes © G.Karras 2010, p.7 Î Growth Accounting (a decomposition): 4 4 48 4 4 47 6 3 2 1 3 2 1 8 7 6 3 2 1 3 2 1 on accumulati growth labor growth capital efficiency growth MFP growth real N N K K A A Y Y Δ + Δ + Δ = Δ 7 . 0 3 . 0 Î Solow residual: Δ + Δ Δ = Δ N N K K Y Y A A 7 . 0 3 . 0 Note: the Solow residual is computable.
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Macro Notes © G.Karras 2010, p.8
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Macro Notes © G.Karras 2010, p.9
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Macro Notes © G.Karras 2010, p.10
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Macro Notes © G.Karras 2010, p.11 6.3. The Solow Model : Four building blocks (1) Production function Assume the aggregate production function is Cobb-Douglas: 7 . 0 3 . 0 N K A Y = Define the per capita (or per worker ) variables: N Y y = : capita per income N K k = : capita per stock capital
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Macro Notes © G.Karras 2010, p.12 The per capita (or, per worker ) production function: = = = = 3 . 0
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This note was uploaded on 04/08/2010 for the course ECON econ218 taught by Professor Tom during the Spring '10 term at University of Illinois, Urbana Champaign.

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notes_macro_ch6 - MACROECONOMICS Georgios Karras*...

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