17 2017 faculty of economics and business Understanding the steady

17 2017 faculty of economics and business

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| Date 09-01-2017 faculty of economics and business Understanding the steady state (1) The steady state is defined as the state of the economy in which the level of (HERE!: effective) capital per worker does not change over time. Last lecture: it implied that the addition to the capital stock (investments) were exactly equal to the amount of capital that depreciates. Question: How much capital needs to be accumulated when we take into account technological progress and population growth? 18
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| Date 09-01-2017 faculty of economics and business Understanding the steady state (2) When we want to stay in the steady state. What should happen to keep the amount of capital per effective worker constant when there is depreciation of capital ? Depreciation implies that there is less capital (per effective worker). Hence, to stay in the steady state, there should be additional investment. 19
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| Date 09-01-2017 faculty of economics and business Understanding the steady state (3) When we want to stay in the steady state. What should happen to keep the amount of capital per effective worker constant when there is population growth ? Population growth implies that there is still the same amount of capital. However, the amount of capital per worker is less. Hence, the amount of capital per effective worker is less. Hence, to stay in the steady state, there should be additional investment. 20
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| Date 09-01-2017 faculty of economics and business Understanding the steady state (4) When we want to stay in the steady state. What should happen to keep the amount of capital per effective worker constant when there is there is technological progress . Technological progress implies that there is still the same amount of capital. There is also the same amount of capital per worker. Yet there is less capital per effective worker ! Hence, to stay in the steady state, there should be additional investments 21
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| Date 09-01-2017 faculty of economics and business Required investments in the steady state › Hence the amount of capital that should be invested in order to keep the level of capital per effective work constant is not equal to the depreciated amount of capital, › Instead, it is equal to: 22 ( ) δ + + g g K AN A N
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| Date 09-01-2017 faculty of economics and business Technology and the steady state (1) This figure focuses on output, capital and investment per effective worker . Output per effective worker increases with capital per effective worker, but at a decreasing rate. 23
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| Date 09-01-2017 faculty of economics and business Technology and the steady state (2) Note that we now allow for technological progress!
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  • Fall '17
  • Economics, 2 K, 1 K, dr. R.M. Jong-A-Pin

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