Lecture_10_complete_version

Lecture_10_complete_version - Lecture 10 Economic Growth II...

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1 Lecture 10 Economic Growth II
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2 Savings and Investment Savings: resources withheld from current income/consumption. Used to acquire new output-generating capital National income identity: Y = C + I + G Y = C + S + T S + (T – G) = I National savings Open Economy??
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3 Solow-Swan Model ( 29 , Y Af K L = Production Function: In per-capita terms: ( ) y Af k = NB: constant returns to scale + diminishing MP assumptions K k L = Y y L = “capital-labour ratio”
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4 Solow-Swan Model (cont.) y k ( ) y Af k = Must economic growth eventually stop?
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5 Equilibrium” Steady state: 0 y ∆ = 0 k ∆ = Investment: i ri ni = + Replacement I Net I I i L = ( 29 i d n k k = + + ∆ depreciation rate population growth rate
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6 Equilibrium” (cont.) i y θ = Savings: savings rate Combining all this yields: ( 29 k y d n k ∆ = - + Steady state occurs when: ( 29 y d n k θ= +
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7 Steady State – In Pictures y, s, ri k ( ) y Af k = s y θ = ( 29 ri d n k = + Steady state
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8 Implications
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Lecture_10_complete_version - Lecture 10 Economic Growth II...

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