ECON 11:2

ECON 11:2 - In steady state K(future) K(present) =...

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In steady state K(future) – K(present) = sA(K(present))^e – (n+d)K(present) Break even capital = straight line in solow diagram = (n+d)Kt Savings per capita = lower line on diagram = sy = sA(K)^e When savings per capita = break even investment, then we can retrieve the physical capital per person of the steady state - Plug this back in for the output per capita (the higher line on the diagram) - Overtime, if capital is shrinking, then the break even investment will be above savings – but it will move towards the steady state o This will mean the capital will decrease over time – we are gravitationally pulled towards the steady state Aggregate output is growing at the growth rate of the population The growth of the aggregate variable does NOT depend on the savings rate, only on the population growth rate - In the short run, we will experience higher growth - Distance between savings and investment grows faster in the beginning - POLICY - Increase the interest rate, this will raise savings
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This note was uploaded on 01/14/2012 for the course ECON 002 taught by Professor Eudey during the Fall '08 term at UPenn.

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ECON 11:2 - In steady state K(future) K(present) =...

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