Unformatted text preview: necessary to keep the capital stock per worker constant. Therefore, at the steady state k*, Δk = 0, and i* = δk* + nk*. In the steady state, investment has two purposes. Some of it (δk*) replaces the depreciated capital, and the rest (nk*) provides the new workers with the steady state amount of capital. Page 23 of 52 Jessica Gahtan Prof: Mokhles Hossain Macroeconomics ECON2000 Fall 2013 Population growth shows how in the steady state, total capital and total output are growing at rate n. Hence, while population growth cannot explain sustained growth in the standard of living (because output per worker is constant in the steady state), it can help explain sustained growth in total output. The Solow model predicts that countries with higher population growth will have lower levels of GDP per person since the higher (δ + n)k line means that the steady state level of capital and output will be lower. Steady state consumption can now be redefined as: c* = f(k*) – (δ + n)k* Therefore we conclude that the level of k* which maximizes consumption is the one at which: MPK = δ + n The Malthusian model on population growth: Malthus predicted that an ever increasing population would continually strain society’s ability to provide for itself, and predicted that humankind would forever live in poverty. He concluded that “the power of population is infinitely greater than the power in the earth to produce subsistence for man.” Malthus failed to see that the growth in humankind’s ingenuity would more than offset the effects of a larger population. The Kremerian model: Michael Kremer suggested that world population growth is a key driver of advancing economic prosperity. The more people there are, the more scientists, inventors etc., to contribute to technological progress. Empirical evidence from the past seems to support this. Chapter 8 To incorporate technological progress, we return to the production function Y = F(K, L). We now write the production function as: Y = F(K, L x E) Where E is a new and somewhat abstract variable called the efficiency of labour. The efficiency of labour reflects society’s knowledge about production methods: as the available technology improves, the efficiency of labour rises. The term L x E measures the effective number of workers, therefore...
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This test prep was uploaded on 03/28/2014 for the course ECON 2000 taught by Professor Henriques during the Fall '10 term at York University.
 Fall '10
 Henriques
 Macroeconomics

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