08+The+Sources+of+Growth+and+the+Solow+Model,+Part+2

08+The+Sources+of+Growth+and+the+Solow+Model,+Part+2 - 1...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 8-1 The Sources of Growth and the Solow Model Part 2 8-2 Agenda 1. The Solow Models Disequilibrium Dynamics 2. The Solow Growth Model and Convergence 3. Changes in the Saving Rate, s 4. Changes in the Labor Force Growth Rate, g L 5. Productivity Growth in the Solow Model 8-3 The Solow Growth Model The Solow Growth Model combines: 1. The per-worker production function , 2. The per-worker saving function , and 3. The per-worker balanced investment function. It initially assumes that A is constant. So there is no productivity growth, i.e., g A = 0 8-4 S The Solow Growth Model K/L Y/L, I/L, I B /L I/L = s *A* f(K/L) I B /L = ( + g L0 )K/L Y/L = A* f(K/L) (Y/L) S (I/L) S = (I B /L) S (K/L) S 2 8-5 Disequilibrium Dynamics What if the economy is BELOW its steady- state? 1. Suppose (K/L) 1 < (K/L) S 8-6 S Disequilibrium Dynamics K/L Y/L, I/L,I B /L I/L = s *A* f(K/L) I B /L = ( + g L0 )K/L Y/L = A * f( K/L ) (Y/L) S (I/L) S = (I B /L) S (K/L) S 8-7 Disequilibrium Dynamics What is the adjustment mechanism that moves the economy to its steady-state? 1. If (K/L) 1 < (K/L) S , then at (K/L) 1 , I/L > I B /L 2. If I/L > I B /L, then K/L will increase. 3. This process continues until K/L = (K/L) S 8-8 Disequilibrium Dynamics What if the economy is ABOVE its steady- state? 2. Suppose (K/L) 1 > (K/L) S 3 8-9 S Disequilibrium Dynamics K/L Y/L, I/L, I B /L I/L = s *A*f(K/L) I B /L = ( +g L0 )K/L Y/L = A*f(K/L) (Y/L) S (I/L) S = (I B /L) S (K/L) S 8-10 Disequilibrium Dynamics What is the adjustment mechanism that moves the economy to its steady-state? 1. If (K/L) 1 > (K/L) S , then at (K/L) 1 , I/L < I B /L 2. If I/L < I B /L, then K/L will decline. 3. This process continues until K/L = (K/L) S 8-11 The Solow Growth Model With no productivity growth: 1. The economy reaches a steady state, 2. with a constant capital-to-labor ratio, K/L, and 3. with constant output-per-worker, Y/L. The steady state is where the economy converges to in the long run and so is the long-run equilibrium for the economy. 8-12 The Solow Model and Convergence Countries that are similar in 1. Total factor productivity, 2. Labor force growth rates, 3. Saving rates, and 4. Depreciation rates will eventually converge to similar 1. Capital-to-labor ratios, and 2. Income-per-worker levels. 4 8-13 S The Solow Model and Convergence K/L Y/L, I/L,I B /L I/L = s *A*f(K/L) I B /L = ( +g L0 )K/L Y/L = A*f(K/L) (Y/L)...
View Full Document

This note was uploaded on 07/21/2011 for the course ECON 100B taught by Professor Wood during the Spring '08 term at University of California, Berkeley.

Page1 / 12

08+The+Sources+of+Growth+and+the+Solow+Model,+Part+2 - 1...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online