Macro5_Solow_Growth_Model_3_pop_and_tech

Macro5_Solow_Growth_ - The Solow Growth Model(Part Three The augmented model that includes population growth and technological progress Model

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The Solow Growth Model (Part Three) The augmented model that includes population growth and technological progress.
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Model Background As mentioned in parts I and II, the Solow growth model allows us a dynamic view of how savings affects the economy over time. We learned about the steady state level of capital and how a golden rule steady state level of capital can be achieved by setting the savings rate to maximize consumption per worker. We now augment the model to see the effects of population growth and technological progress.
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Steady State Equilibrium By expanding our model to include population growth our model more closely resembles the sustained economic growth observable in much of the real world. To see how population growth affects the steady state we need to know how it affects the accumulation of capital per worker. When we add population growth (n) to our model the change in capital stock per worker becomes… Δk = i – (δ+n)k As we can see population growth will have a negative effect on capital stock accumulation. We can think of (δ+n)k as break- even investment or the amount of investment necessary to keep capital stock per worker constant.
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This document was uploaded on 11/11/2010.

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Macro5_Solow_Growth_ - The Solow Growth Model(Part Three The augmented model that includes population growth and technological progress Model

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