EC21A-Lecture_10 - Intermediate Macroeconomics I EC21A...

Info iconThis preview shows pages 1–13. Sign up to view the full content.

View Full Document Right Arrow Icon
Intermediate Macroeconomics I EC21A (Econ 2002) Introduction to Long Run Economic Growth
Background image of page 1

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

View Full DocumentRight Arrow Icon
Long Run Economic growth Economic growth- the growth rate of real GDP per capita. Achievement of rapid economic growth is one of the most distinguishing features of a successful economy. Long-run growth model does not attempt to explain SR cyclical fluctuations in output.
Background image of page 2
Long Run Growth Model does not explain what causes departures from the full employment level. It describes the economy when the labour MKT. is in equilibrium and producing at full-employment.
Background image of page 3

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

View Full DocumentRight Arrow Icon
Why do Economists study Growth? understand why poor countries are poor design policies that can help them grow In his study of economic growth Robert Solow explained that in the long-run an economy’s saving rate determines the size of its capital stock and thus its level of production. Some economists argue that the population size (fertility rate) affects economic growth.
Background image of page 4
Determinants of Economic Growth Factors of production and available technology- this determines full employment or potential output. 1) Labour- amount of output produced depends on the number of workers employed and the number of hours they work. Even when the labour mkt. is in equilibrium, there will be unemployment. (natural rate of unemployment)
Background image of page 5

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

View Full DocumentRight Arrow Icon
Determinants of Economic Growth 2) Capital- tools or machinery used by workers. This depends on the level of investment. 3)Technology- anything that influences the productivity of the factors of production.
Background image of page 6
Solow Growth Model Here we focus on: the closed economy Solow model how a country’s standard of living depends on its saving and population growth rates how to use the “Golden Rule” to find the optimal saving rate and capital stock
Background image of page 7

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

View Full DocumentRight Arrow Icon
The Solow model due to Robert Solow, won Nobel Prize for contributions to the study of economic growth a major paradigm: widely used in policy making benchmark against which most recent growth theories are compared looks at the determinants of economic growth and the standard of living in the long run
Background image of page 8
CHAPTER 7 Economic Growth I The production function In aggregate terms: Y = F ( K , L ) Define: y = Y/L = output per worker k = K/L = capital per worker Assume constant returns to scale: zY = F ( zK , zL ) for any z > 0 Pick z = 1 /L . Then Y/L = F ( K/L , 1 ) y = F ( k , 1 ) y = f ( k ) where f ( k ) = F ( k , 1 )
Background image of page 9

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

View Full DocumentRight Arrow Icon
CHAPTER 7 Economic Growth I The production function Output per worker, y Capital per worker, k f(k) Note: this production function exhibits diminishing MPK. Note: this production function exhibits diminishing MPK. 1 MPK = f ( k + 1 ) f ( k )
Background image of page 10
CHAPTER 7 Economic Growth I The national income identity Y = C + I (assume: closed economy with no government ) In “per worker” terms: y = c + i where c = C / L and i = I   / L
Background image of page 11

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

View Full DocumentRight Arrow Icon
CHAPTER 7 Economic Growth I The consumption function s = the saving rate, the fraction of income that is saved ( s is an exogenous parameter)
Background image of page 12
Image of page 13
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 48

EC21A-Lecture_10 - Intermediate Macroeconomics I EC21A...

This preview shows document pages 1 - 13. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online