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Lecture14 - Announcements PS#5 due today PS#6 posted today...

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Announcements PS #5 due today PS #6 posted today, due Tuesday Nov 9 in lecture Readings/Outline • Today: Growth accounting – Mankiw, Ch 8-3 and Ch 8-Appendix Thursday: Intro to Aggregate Demand – Mankiw, Ch 9 Next week: IS/LM – Mankiw, Ch 10, ch 11 Calibrated Solow Model Cobb Douglas with capital share = 1/3 Levels calibrated to US economy Initially in steady state Initially n= 1%, g =2% Æ steady state growth = 3% All experiments relative to this baseline
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Per Effective Labor Variables 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 Output (y) Capital (k) Cons. (c) Baseline Aggregate Consumption (Log Scale) 10,000 100,000 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 Baseline The impact of population growth Investment, Saving Capital per worker, k sf(k) ( δ + n 2 +g ) k k 2 * ( δ + n 1 +g ) k k 1 * An decrease in n Leads to a higher steady-state level of k .
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Experiment: Decrease growth in population to 2% Per Effective Labor Variables 0.60 0.70 0.80 0.90 1.00 1.10 1.20 1.30 1.40 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 Output (y) Capital (k) Cons. (c)
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