07+The+Sources+of+Growth+and+the+Solow+Model%2C+Part+1

# 07+The+Sources+of+Growth+and+the+Solow+Model%2C+Part+1 - 1...

This preview shows pages 1–4. Sign up to view the full content.

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

View Full Document

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 7-1 The Source of Growth and the Solow Model Part 1 7-2 Agenda 1. The Importance of Long-Term Growth 2. The Sources of Economic Growth 3. The Solow Growth Model 7-3 The Importance of Long-Term Growth • Long-term economic growth is about the annual average growth rate of real economic output, generally over period of 10 years or longer. • Because of changes in the size of a country’s population and labor force, economic output is generally measured in per-capita or per- worker terms . 7-4 The Importance of Long-Term Growth Y/L 1,500BCE 0 500CE 1000 1500 1750 2000 http://www.youtube.com/watch?v=jbkSRLYSojo 2 7-5 The Importance of Long-Term Growth • Small changes in growth rates make very large differences over long periods of time. – The Rule of 72 gives an approximation for how long it takes for an economy to double in size for various growth rates. • To calculate, divide 72 by the country’s average annual growth rate. • The result is the number of years it takes to double the economy. 7-6 The Importance of Long-Term Growth 7-7 The Sources of Economic Growth • The economy’s production function is: Y = AF ( K , L ) ¾ where: 1. Y = economic output, 2. K = the capital stock, 3. L = the labor force, and 4. A = total factor productivity. 7-8 The Sources of Economic Growth • The growth accounting formula is: ∆ Y/Y = ∆ A/A + α K ∆ K/K + α L ∆ L/L ¾ where: 1. α K is the output elasticity with respect to K, 2. α L is the output elasticity with respect to L, and 3. α K + α L = 1. 3 7-9 The Sources of Economic Growth • More specifically for the U.S.: Y = AK 0.3 L 0.7 • and ∆ Y/Y = ∆ A/A + 0.3 ∆ K/K + 0.7 ∆ L/L 7-10 The Sources of Economic Growth • Using alternative notation: g Y = g A + 0.3g K + 0.7g L ¾ where: 1. g Y = growth rate of Y, economic output....
View Full Document

{[ snackBarMessage ]}

### Page1 / 11

07+The+Sources+of+Growth+and+the+Solow+Model%2C+Part+1 - 1...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online