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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 SolowSwan growth model? 2. What assumptions are required for the SS model? 3. How does the SS 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 SS 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 SolowSwan 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 SolowSwan Model ECON1002 Introductory Macroeconomics 6 An important behavioural assumption ; 0 1 s y θ θ = < < y s 100 20 150 30 200 40 250 50 0.20 θ = The SolowSwan Model (assume this) ECON1002 Introductory Macroeconomics...
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 Three '10
 MarkMelatos
 Economics, Macroeconomics, per capita, Capital accumulation, introductory macroeconomics

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