Lecture9 - ECON1002 Introductory Macroeconomics 1 Lecture...

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Unformatted text preview: ECON1002 Introductory Macroeconomics 1 Lecture 9: A neoclassical Model of Growth Should be able to answer the following questions.. 1. What is the Solow-Swan growth model? 2. What assumptions are required for the S-S model? 3. How does the S-S model explain growth? 4. What is the concept of the steady state and what are the predictions of the model? 5. What are the limitations of the S-S model? 6. What is the concept of endogenous growth? 7. What is convergence? Is it supported by the theory and data? ECON1002 Introductory Macroeconomics 2 What message do we get from the production function approach to understanding growth? Economic growth Contribution from labour (L) Contribution from secondary factors of production (A) Contribution from capital (K) Production Function Approach ECON1002 Introductory Macroeconomics 3 Y = C + I + G (closed economy NX =0) Y = C + S + T By combining the two expressions for Y, I + G = S + T I = S + (T G) National savings Savings, Investment and Growth Investment ECON1002 Introductory Macroeconomics 4 per capita production function The Solow-Swan Model ( ) y Af k = N.B. Lower case letters denote per capita variables. ECON1002 Introductory Macroeconomics 5 k y production function k y k 1 y Question : Will growth ever stop? The Solow-Swan Model ECON1002 Introductory Macroeconomics 6 An important behavioural assumption ; 0 1 s y = < < y s 100 20 150 30 200 40 250 50 0.20 = The Solow-Swan Model (assume this) ECON1002 Introductory Macroeconomics...
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Lecture9 - ECON1002 Introductory Macroeconomics 1 Lecture...

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