321LecNoteCh8

# 321LecNoteCh8 - Instructor Kim H.H Spring 2011 Intermediate...

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Instructor : Kim, H.H. Intermediate Macro Analysis Spring 2011 Economics 01:220:321 1 Chapter 8. Economic Growth II: Technology, Empirics and Policy In this chapter, you will learn: how to incorporate technological progress in the Solow model about policies to promote growth about growth empirics: confronting the theory with facts two simple models in which the rate of technological progress is endogenous Introduction In the Solow model of Chapter 7, the production technology is held ______________ . income per capita is in the _____________________. Neither point is true in the real world: 1908-2008: U.S. real GDP per person grew by a factor of 7.8, or 2.05% per year. examples of technological progress abound (see next slide). Examples of technological progress From 1950 to 2000, U.S. farm sector productivity nearly tripled. The real price of computer power has fallen an average of 30% per year over the past three decades. Percentage of U.S. households with 1 computers: 8% in 1984, 62% in 2003 1981: 213 computers connected to the Internet 2000: 60 million computers connected to the Internet Solow Model - Continued Technological progress in the Solow model

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Instructor : Kim, H.H. Intermediate Macro Analysis Spring 2011 Economics 01:220:321 2 A new variable: E = _________________ Assume: Technological progress is _________________: it increases labor efficiency at the _________________: We now write the production function as: __________________________________________. where L × E = __________________________________ Increases in labor efficiency have the _________________ effect on output as increases in the labor force. Notation: y = Y/LE = output per effective worker k = K/LE = __________________________________ Production function per effective worker: _________________ Saving and investment per effective worker: _________________ Break-even investment : ______________________ the amount of investment necessary to keep k constant. Consists of: δ k to replace __________________________________ n k to provide __________________________________ g k to provide capital for the new “effective” workers created by technological progress Equation for motion of k. _______________________________________________
Instructor : Kim, H.H. Intermediate Macro Analysis Spring 2011 Economics 01:220:321 3 Steady-state growth rates in the Solow model with tech. progress The Golden Rule with technological progress To find the Golden Rule capital stock, express c * in terms of k * : c * = _________________ = __________________________________ c * is maximized when _________________ Investment, break- even investment Capital per worker, k Total output Output per worker Output per effective worker Capital per effective worker

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