These gaps represent huge welfare differences

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Unformatted text preview: nding why some countries are so rich while some others are so poor is one of the Soojin Kim (Purdue) most important, Macroeconomics perhaps the most important, challenges facing social science. It is important / 28 Spring 2014 4 Why growth matters Growth Rate Matters... Anything that effects the long-run rate of economic a LOT, the long-run!! growth – even by a tinyinamount – will have huge effects on living standards in the long run. annual growth rate of income per capita …25 years …50 years …100 years 2.0% 64.0% 169.2% 624.5% 2.5% 85.4% 243.7% 1,081.4% CHAPTER 8 increase in standard of living after… Economic Growth I Soojin Kim (Purdue) 5 Macroeconomics Spring 2014 5 / 28 The Solow Model due to Robert Solow, the winner of 1987 Nobel Prize Soojin Kim (Purdue) Macroeconomics Spring 2014 6 / 28 Key Model Ingredients • K is no longer fixed! • K increases with investment. • K decreases with depreciation. • L is no longer fixed! • L increases with population...
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