321LecNote10Ch7

321LecNote10Ch7 - Instructor : Kim, H.H. Fall 2009...

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Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 1 Chapter 7. Economic Growth I: Capital Accumulation and Population Growth In this chapter, you will learn: ± the closed economy Solow model ± how a country’s standard of living depends on its saving and population growth rates ± how to use the “Golden Rule” to find the optimal saving rate and capital stock Why growth matters ± Data on infant mortality rates: ± 20% in the poorest 1/5 of all countries ± 0.4% in the richest 1/5 ± In Pakistan, 85% of people live on less than $2/day. ± One-fourth of the poorest countries have had famines during the past 3 decades. ± Poverty is associated with oppression of women and minorities. Economic growth raises living standards and reduces poverty…. Income and poverty in the world, selected countries, 2000
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Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 2 Why growth matters ± Anything that effects the long-run rate of economic growth – even by a tiny amount – will have huge effects on living standards in the long run. ± If the annual growth rate of U.S. real GDP per capita had been just one-tenth of one percent higher during the 1990s, the U.S. would have generated an additional $496 billion of income during that decade. The lessons of growth theory These lessons help us ± understand why poor countries are poor ± design policies that can help them grow ± learn how our own growth rate is affected by shocks and our government’s policies The Solow model due to Robert Solow, won Nobel Prize for contributions to the study of economic growth a major paradigm: widely used in policy making benchmark against which most recent growth theories are compared looks at the determinants of economic growth and the standard of living in the long run How Solow model is different from Chapter 3’s model 1. __________________________ investment causes it to grow, depreciation causes it to shrink 1,081.4% 243.7% 85.4% 624.5% 169.2% 64.0% 2.5% 2.0% …100 years …50 years …25 years percentage increase in standard of living after… annual growth rate of income per capita
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Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 3 2. __________________________ population growth causes it to grow 3. the consumption function is simpler 4. __________________________ (only to simplify presentation; we can still do fiscal policy experiments) 5. cosmetic differences The production function In aggregate terms: Y = F ( K , L ) Define: y = Y/L = __________________________ k = K/L = __________________________ Assume __________________________ zY = F ( zK , zL ) for any z > 0 Pick z = 1 /L . Then Y/L = __________________________ y = __________________________ y = __________________________ The national income identity __________________________ (remember, no G ) In “per worker” terms: Output per worker, y Capital per worker, k f(k)
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Instructor : Kim, H.H. Intermediate Macro Analysis
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This note was uploaded on 02/07/2011 for the course ECON 321 taught by Professor Sani during the Fall '08 term at Rutgers.

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321LecNote10Ch7 - Instructor : Kim, H.H. Fall 2009...

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