SOLOW1 - A Simple Growth Model Set up a produc tion...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
A Simple Growth Model Set up a production function, which relates inputs to outputs. We try to imagine the economy as a factory: Y = f(K,L). Output, Y, depends on combinations of inputs of capital and labor, K and L. Particular functions, as Mankiw points out, allow us to transform the original model to a per worker representation, Y/L = f(K/L,1): this says that output per worker (or GDP per worker) depends on capital per worker. Simplify the notation to Y/L y and K/L k and draw a graph of the relationship: capital per worker output per worker y = f(k) Next, take the simple national income model of a closed economy without a government sector, that is, Y = C + I. Here, GDP is just consumption and investment. Put it on a per worker basis as well, to get y = c + i, where Y/L y, or GDP per worker, C/L c, or consumption per worker, and I/L i, or investment per worker. We need to define a consumption function, which relates workers’ consumption to their income, as c = (1 - s) y. This says that workers’
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/13/2012 for the course ECO 202 taught by Professor Normmiller during the Spring '08 term at Miami University.

Page1 / 3

SOLOW1 - A Simple Growth Model Set up a produc tion...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online