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

# N is constant there is no technological progress 36

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

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