Macro - growth theory

Macro - growth theory - Sept 20th GROWTH THEORY Solow...

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Sept 20 th GROWTH THEORY Solow Model: Most basic model of growth, models capital accumulation. What causes growth? Countries that were rich, did produce a lot of growth. Capital accumulation can lead go higher growth/income. YT= f(Kt,EtLt) A affects both k and L factor Yt = AtF(kt,Lt) It shows constant returns to scale, it means that if I double my inputs I will double my inputs my same amount. This key property will show diminishing returns. [Formula1] The derivative is the marginal product. Production Function Exhibits diminishing MPK and MPL. Consumer side: how do people save? People either consume or save, comparison to income and output. We are going to assume that consumers save a constant function of their income, s is the constant and it is the savings rate it is a number 0 < s < 1. It = sYt, fraction that you save * total amount of dollar that you make gross actual investment. Resource constraint:
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This note was uploaded on 04/17/2010 for the course LAPS ECON2350 a taught by Professor Barrysmithandtasso during the Spring '10 term at York University.

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Macro - growth theory - Sept 20th GROWTH THEORY Solow...

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