Econ352_Chapter8(1)

Represents the fraction of the capital stock that

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Unformatted text preview: tal stock that wears out each period. Soojin Kim (Purdue) Macroeconomics Spring 2014 13 / 28 Capital Accumulation and the Steady State • Change in capital stock = Investment-Depreciation ∆k = i − δ k ⇒ ∆k = sf (k ) − δk • The economy reaches the steady state, when ∆k = sf (k ) − δ k = 0 ⇒ sf (k ) = δ k • We denote this level of capital by k ∗ . Soojin Kim (Purdue) Macroeconomics Spring 2014 14 / 28 The Steady State Soojin Kim (Purdue) Macroeconomics Spring 2014 15 / 28 Effects of an Increase in the Saving Rate Do countries with higher investment rates have higher output? Soojin Kim (Purdue) Macroeconomics Spring 2014 16 / 28 Investment Rates and Income International evidence on investment rates and income per person Income per 100,000 person in 2009 (log scale) 10,000 1,000 100 0 10 20 30 40 50 Investment as percentage of output (average 1961-2009) Soojin Kim (Purdue) Macroeconomics Spring 2014 17 / 28 The Golden Rule Level of Capital Soojin Kim (Purdue) Macroeconomics Spring 2014 18 / 28 The Golden Rule • Different values of s lead to different steady states? • What is the level of s...
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