Econ352_Chapter8(1)

L is no longer xed l increases with population growth

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Unformatted text preview: growth. • No G or T , i.e., G = T = 0 • The fraction of income s is saved. Soojin Kim (Purdue) Macroeconomics Spring 2014 7 / 28 The Production Function Y = F (K , L) • Assume Constant Returns to Scale • Let y= Y L and k= K . L ⇒ y = F (k , 1) ≡ f (k ) • Then Y 1 K = F (K , L) = F ( , 1) L L L Soojin Kim (Purdue) Macroeconomics Spring 2014 8 / 28 The Production Function on a Graph Soojin Kim (Purdue) Macroeconomics Spring 2014 9 / 28 National Income Identity and Consumption Function • The national income identity reads: Y = C + I . • Let c= C L and i= I L • Then, Y =C +I ⇒ y = c + i. • Since s is the fraction of income saved, c = (1 − s )y . Soojin Kim (Purdue) Macroeconomics Spring 2014 10 / 28 Saving and Investment • Saving per worker equals y − c = y − (1 − s )y = sy . • From national income identity, i = y − c = sy • Investment equals Savings, i.e., i = sy = sf (k ) Soojin Kim (Purdue) Macroeconomics Spring 2014 11 / 28 Output, Consumption, and Investment Soojin Kim (Purdue) Macroeconomics Spring 2014 12 / 28 Depreciation • Denote by δ , the rate of depreciation of capital. • δ represents the fraction of the capi...
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This document was uploaded on 02/24/2014 for the course KRANNERT 352 at Purdue University-West Lafayette.

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