notes_macro_ch6

notes_macro_ch6 - MACROECONOMICS Macro Notes G.Karras 2011...

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Macro Notes © G.Karras 2011 MACROECONOMICS Georgios Karras* University of Illinois at Chicago * Professor of Economics; Mailing Address: Department of Economics, University of Illinois at Chicago, 601 S. Morgan St., Chicago, IL 60607-7121; e-mail: gkarras@uic.edu . Lecture Draft Do not cite without permission
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Macro Notes © G.Karras 2011, p.2 ││ 6 ││ LONG -RUN ECONOMIC GROWTH 6.1. Motivation
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Macro Notes © G.Karras 2011, p.3
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Macro Notes © G.Karras 2011, p.4 Income per capita Annual growth per (PPP US$) 2010 capita, 1970-2008 . Norway 58,810 2.6% United States 47,094 1.9 Germany 35,308 1.9 Japan 34,692 2.1 Mexico 13,971 1.7 Brazil 10,607 2.2 China 7,258 7.9 India 3,337 3.6 Nigeria 2,156 1.0 Liberia 320 -2.0
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Macro Notes © G.Karras 2011, p.5 Two basic questions: #1: Why are income levels so different across countries? #2: Why are income growth rates so different? Two approaches: #1: Growth Accounting (measurement) #2: Solow Growth Model (theory)
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Macro Notes © G.Karras 2011, p.6 6.2. Growth Accounting Recall, the production function : ) , ( labor capital ty productivi r multifacto GDP real N K F A Y Special Case: A “Cobb - Douglas” Production Function 7 . 0 3 . 0 N K A Y Take growth rates:
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Macro Notes © G.Karras 2011, p.7 Growth Accounting (a decomposition): on accumulati growth labor capital efficiency MFP real N N K K A A Y Y 7 . 0 3 . 0 Solow residual: N N K K Y Y A A 7 . 0 3 . 0 Note: the Solow residual is computable.
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Macro Notes © G.Karras 2011, p.8
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Macro Notes © G.Karras 2011, p.9
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Macro Notes © G.Karras 2011, p.10
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Macro Notes © G.Karras 2011, p.11 6.3. The Solow Model : Four building blocks (1) Production function Assume the aggregate production function is Cobb-Douglas: 7 . 0 3 . 0 N K A Y Define the per capita (or per worker ) variables: N Y y : capita per income N K k : capita per stock capital
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Macro Notes © G.Karras 2011, p.12 The per capita (or, per worker ) production function: 3 . 0
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notes_macro_ch6 - MACROECONOMICS Macro Notes G.Karras 2011...

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