Lecture12-1 - Announcements Today: Economic growth Golden...

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1 Announcements Today: Economic growth • Golden rule • Solow model with growth: – population – technology Announcements Main readings for today • Golden rule: Mankiw, 7-2 • Population growth: Mankiw, 7-3 • Technological progress: Mankiw: 8-1 Rest of week • Mankiw, ch 8 WSJ article on TIPS Announcements • PS #5 available on CTOOLS • Due Tuesday November 2 in lecture
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2 Comments on notation  lower case savings rate (parameter) S s Y (, , ) CC r YW CD r YW Function Variable Shift Review • Equilibrium condition i = sf(k) • Steady-state condition k = sf(k) −δ k = 0 • Economy always in equilibrium • Steady-state is equilibrium in long run Review • During adjustment to steady state k> 0, if k < k * k< 0, if k > k * • In steady state k= 0 and k = k *
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3 Review: Increase in national saving rate Increase in steady state capital and output Slow adjustment: Capital stock increases Consumption initially falls Output and capital gradually rises Consumption eventually rises An increase in the saving rate Investment and depreciation k δ k s 1 f(k) * k 1 s 2 f(k) * 2 Transition path with increase in saving In initial steady state prior to t 0 time t 0 c i y Saving rate jumps up at t 0
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Lecture12-1 - Announcements Today: Economic growth Golden...

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