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Unformatted text preview: 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) 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) 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) 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) 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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This note was uploaded on 12/21/2011 for the course ECON 3014 taught by Professor Michaelshaw during the Spring '11 term at HKU.
 Spring '11
 Michaelshaw
 Economics

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