Econ 114- Lecture 5

Econ 114- Lecture 5 - Review Proximate causes of income...

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Unformatted text preview: Review Proximate causes of income differences Factor accumulation capital (Solow Model) Labor Factor Productivity Inferior technologies Lower efficiency Accumulation and productivity Chart rich countries vs. poor countries The Solow Model Differences in capital generate differences in income.but there are two forces Accumulation (investment) Depreciation Assume that population is constant (k+1) = k(t)- der of k(t)+i(t) (k+1)-k(t) = i(t) - der of k(t) Change in k = I der of k. But what about investment We need to determine investment. Households save a constant fraction of their income and then investment is proportional to income. y or I=f(k) k = f(k)-k = Fundamental growth rate change in capital - depreciation Steady State in Solow Figure 3.4: The steady state of the Solow model....
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Econ 114- Lecture 5 - Review Proximate causes of income...

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