BBTopic5_08

# BBTopic5_08 - MARGINALIST GROWTH THEORY I: SOLOW - SWAN...

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MAIN POINTS : Growth without technical progress in a marginalist framework: full-employment in the steady state Diminishing returns and the steady state The steady state growth rate independent of the saving propensity Distribution and growth in a marginalist model Harrod’s unemployment problem seen as a lack of flexibility in relative factor prices Technical progress in the Solow-Swan model: exogenous growth in steady state output per worker MARGINALIST GROWTH THEORY I: SOLOW - SWAN

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Assume constant returns to scale production technology using capital and labour: Growth without technical progress Assume α + β =1 => = 1 - . In per worker terms (dividing through by L) Ignore technical progress => in equilibrium output and the capital stock grow at the same rate, g e Ignoring physical depreciation, % K = I / K (with depreciation at the rate δ => % K = I / K - δ ) ( 29 L AK L K F Y = = , ( 29 - - - = = 1 1 L AK L L AK L Y L AK L AK = = - - 1 1 k A y . = ( 29 k f y = where k = K / L , or ........ (4.1) ........ (4.2) ........ (4.3)
In this model, g e = g n (i.e. % working age pop.) i.e. in equilibrium, output and the capital stock grow at the same rate as the labour force Writing for v v s g K I Y Y g n e = = = = y k Y L L K Y K v= = = . n g k y s = . = K Y Y S . ( 29 n g k k f s = . ( 29 s k g k f n . = => ........ (4.4) ........ (4.5) ........ (4.6) In turn, from equation (4.6) ( 29 n g k k f s = . n g K I K Y s = = . n g L K L Y s = . => => ...(4.7) Along the equilibrium path, S , I , Y and K all grow at the same rate - g n

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An example: assume g L = g n (i.e. labour employment grows at the same rate as the labour force – why this is, we will take up shortly) Suppose at a point in time K = 1000,
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## This note was uploaded on 04/20/2010 for the course ECOS 3001 taught by Professor ? during the One '09 term at University of Sydney.

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BBTopic5_08 - MARGINALIST GROWTH THEORY I: SOLOW - SWAN...

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