Lec15-_Ch10_Ch11-I_-ECON2123-LI-fa13-stu

N is constant there is no technological progress 36

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: apital on Output With these two assumptions, our first relation between output and capital per worker, from the production side, can be written as Yt N f Kt N In words, higher capital per worker leads to higher output per worker. the first relation 37 11-1 INTERACTIONS BETWEEN OUTPUT AND CAPITAL The Effects of Output on Capital Accumulation To derive the second relation, between output and capital accumulation, we proceed in two steps: 1. We derive the relation between output and investment. 2. We derive the relation between investment and capital accumulation. 38 11-1 INTERACTIONS BETWEEN OUTPUT AND CAPITAL The Effects of Output on Capital Accumulation Output and Investment We make three assumptions to derive the relation between output and investment: We assume the economy is closed. I S (T G) We assume public saving, T – G, is equal to zero. I S We assume that private saving is proportional to income, so S sY Combining these two relations gives: It s Yt 39 of 39 Macroeconomics by Yao Li 11-1 INTERACTIONS BETWEEN OUTPUT AND CAPITAL The Effects of Output on Capital Accumulation Investment and Capital Accumulation The evolution of the capital stock is given by: Kt 1 (1 )Kt It denotes the rate of depreciation Combining the relation from output to investment, I t sY t , and the relation from investment to capital accumulation, we obtain the second important relation we want to express, from output to capital accumulation: Kt N 1 (1 ) Kt N s Yt N 40 11-1 Interactions between Output and Capital The Effects of Output on Capital Accumulation Investment and Capital Accumulation Output and Capital per Worker: Kt 1 N (1 ) Kt N s Yt N Rearranging terms in the equation above, we can articulate the change in capital per worker over time: Kt N 1 Kt N s Yt Kt N N In words, the change in the capital stock per worker (left side) is equal to saving per worker minus depreciation (right side). the 2nd relation 41...
View Full Document

This note was uploaded on 03/05/2014 for the course ECON 2123 taught by Professor Yanyu during the Fall '13 term at HKUST.

Ask a homework question - tutors are online