Class 4 - -convergence theory say that poorer countries...

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Class 4 – Jan 13 th 2011 - When savings equals investments, there is steady state - If savings rate and technology is higher, steady state of capital will be high - Appreciation is high, steady state of capital will be low Reducing depreciation - If income rises steady state income will rise - How fast it rises depends on various factors such as - If alpha is large, capital is high and income in economy is high Predicting income levels - Assume everyone is at same steady state capital and technology o Both countries are different due to savings rate o Divide the two, exponents differ only - Some industries may be less capital intensive than others Using investment rates to predict income - almost every country is poor, just based of their investment - using savings rate to talk about the differentiation is not enough
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Unformatted text preview: -convergence theory say that poorer countries should catch up to richer countries, conditional convergence theory says if everything was the same, poor countries should catch up to rich countries.-Further you are from your steady state, faster you should be growing Can government affect the savings rate?-Should the government intervene? o Governments intervene in terms of savings rate all the time o Force savings Optimal Savings Rate-Do we care about income? o We dont care about income, we care about consumption-What savings rate would reduce consumption? o Golden rule savings rate Golden rule steady state-Interest rate equal to savings rate-f(k) = interest rate in economy Does a constant saving rate make sense? (in solow model)-assumes constant savings-...
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This note was uploaded on 02/15/2011 for the course ECON 307 taught by Professor Jackson during the Winter '11 term at Wilfred Laurier University .

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Class 4 - -convergence theory say that poorer countries...

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