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# lecture2 - Lecture 2 The Solow Model The Production...

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Lecture 2 The Solow Model

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ECON 7240 II - 2 The Production Function Aggregate output at t is Factors of production: K ( t ) = capital L ( t ) = labor A ( t ) = technology This specification assumes technology is labor-augmenting or Harrod-neutral. )). ( ) ( ), ( ( ) ( t L t A t K F t Y =
ECON 7240 II - 3 Constant Returns to Scale For any x , y , λ 0, F ( λ x , λ y ) = λ F ( x , y ). Economy is big enough so differentiation and specialization of labor and capital are unimportant. Other inputs, such as land or natural resources, are unimportant. Intensive form Define We can write production function as AL K k = ). ( ) , ( k ALf AL K F = ) 1 , ( ) ( k F k f =

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ECON 7240 II - 4 Other Production Assumptions There is no production without capital. f (0) = 0 The marginal product of capital is positive. f ( k ) > 0 for all k 0. Diminishing returns to capital f ′ ′ ( k ) < 0 for all k 0. Inada conditions = ) ( ' lim 0 k f k 0 ) ( ' lim = k f k
ECON 7240 II - 5 Output per Effective Worker ) ( k f AL Y y = =

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ECON 7240 II - 6
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lecture2 - Lecture 2 The Solow Model The Production...

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