lecture6

# lecture6 - Solow III Golden Rule for Capital Accumulation...

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Solow - III Golden Rule for Capital Accumulation Sources of Growth Economics 2: Growth (Golden Rule) c Kumar Aniket Lecture 6, Week 9 c Kumar Aniket Economics 2: Growth (Golden Rule)

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Solow - III Golden Rule for Capital Accumulation Sources of Growth Effective Units of Labour AL : effective units of labour ˜ k t = K AL : capital stock per effective unit of labour ˜ y t = Y AL : output per effective unit of labour c Kumar Aniket Economics 2: Growth (Golden Rule)
Solow - III Golden Rule for Capital Accumulation Sources of Growth Effective Units of Labour AL : effective units of labour ˜ k t = K AL : capital stock per effective unit of labour ˜ y t = Y AL : output per effective unit of labour Fundamental Equation - III Δ ˜ k t ˜ k t = s ˜ y t ˜ k t - ( δ + n + g ) In convergence dynamics, saving does not exactly offset the reduction in ˜ k t attributable to depreciation, population growth and technological progress. Growth rate of ˜ k t (and ˜ y t ) determined by s , δ, n and g . c Kumar Aniket Economics 2: Growth (Golden Rule)

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Solow - III Golden Rule for Capital Accumulation Sources of Growth Steady State Steady State ˜ y t ˜ k t = δ + n + g s In steady state, saving sf ( ˜ k t ) exactly offsets the reduction in ˜ k t attributable to depreciation, population growth and technological progress. Level of ˜ k t (and ˜ y t ) determined by s , δ, n and g c Kumar Aniket Economics 2: Growth (Golden Rule)
Solow - III Golden Rule for Capital Accumulation Sources of Growth Growth: Steady State vs Convergence Dynamics Δ ˜ k t ˜ k t = s ˜ y t ˜ k t - ( δ + n + g ) (Convergence dynamics) Δ ˜ k t ˜ k t = s ˜ y t ˜ k t - ( δ + n + g ) = 0 (Steady State) c Kumar Aniket Economics 2: Growth (Golden Rule)

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Solow - III Golden Rule for Capital Accumulation Sources of Growth Growth: Steady State vs Convergence Dynamics Δ ˜ k t ˜ k t = s ˜ y t ˜ k t - ( δ + n + g ) (Convergence dynamics) Δ ˜ k t ˜ k t = s ˜ y t ˜ k t - ( δ + n + g ) = 0 (Steady State) Δ ˜ k t ˜ k t = 0 ˜ k t does not grow c Kumar Aniket Economics 2: Growth (Golden Rule)
Solow - III Golden Rule for Capital Accumulation Sources of Growth Growth: Steady State vs Convergence Dynamics Δ ˜ k t ˜ k t = s ˜ y t ˜ k t - ( δ + n + g ) (Convergence dynamics) Δ ˜ k t ˜ k t = s ˜ y t ˜ k t - ( δ + n + g ) = 0 (Steady State) Δ ˜ k t ˜ k t = 0 ˜ k t does not grow Δ ˜ k t ˜ k t = Δ k k - g = 0 k grows at the rate g Δ ˜ y t ˜ y t = Δ y y - g = 0 y grows at g c Kumar Aniket Economics 2: Growth (Golden Rule)

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Solow - III Golden Rule for Capital Accumulation Sources of Growth Social Welfare Maximization Steady State Social Welfare Maximization ˜ k * determined by s , n , δ and g . f ( ˜ k * ) ˜ k * = ( δ + n + g ) s Any steady state (any ˜ k * ) can be reached with the right combination of s , n , δ and g c Kumar Aniket Economics 2: Growth (Golden Rule)
Solow - III Golden Rule for Capital Accumulation Sources of Growth Social Welfare Maximization Steady State Social Welfare Maximization ˜ k * determined by s , n , δ and g .

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