ECO2004S Summary that will change everything! (1).pdf

The change in kn from 1 investment depreciation

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The change in K/N from 1. Investment depreciation positive 2. Depreciatio depreciation negative Steady state capital and ou Steady state capital = p no longer changing i.e investment – deprec Where investment per (function intersect) The Savings Rate and Outpu What is the effect of the 1. The savin because m year to year depends on two factors: t per worker : if investment per worker ex n per worker, the change in capital per wor on per worker : If investment per worker i n per worker then the change in capital per The difference bet is S utput point were capital per worker and output p ciation = 0 worker S(K/N)= depreciation per worker ut e savings rate on growth rate of output per ngs rate has no effect on the LR out put of w it is equal to zero xceeds the rker is is less than er worker is tween B and C per worker are δ(N/K) r worker? worker
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2. Nonethe worker i higher sa long run 3. An increa output p - Assume no technologic The Savings Rate and Consu The savings rate = S(K/N) Government can affect the 1. Changin savings a 2. Affect pr The question what saving Need to change the focus Consider two scenarios: 1. Savings r 2. Savings r because p the LR Conclusi Therefore there must b steady state level of con Golden rule level of cap that results in the high eless, the saving rate determines the level o in the long run. Other things equal, countrie aving rate will achieve higher output per w ase in the saving rate will lead to higher gr per worker for some time, but not forever. The savings rate increases growth but ev effect wears when the economy reaches state level out output per worker cal process umption ) + (T-G) e savings rate: ng public savings : budget surplus increase and budget deficits decreases aggregate sav rivate savings gs rate should the government ask for? to consumption rate is 0 capital = 0 output = 0 cons rate is 1 capital and output will be very h people save all their income the consumpti ion: consumption = 0 when s = 0 S = 1 be an optimum value between 0<S>1 that m nsumption pital = the level of capital at the value of the hest level of consumption in the steady state of output per es with a worker in the rowth of ventually this s its steady es aggregate vings sumption = 0 high but ion is zero in maximizes e savings rate e
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In order for government t make a trade off between Welfare issue Physical vs. Human Capital Human capital = the se The greater the skills, t NB decreasing return t The production functio An increase in how in the form of human steady state human which leads to an per worker. In the LR output depen physical capital and als Endogenous Models of endogenous technological change Output per worker (Y/ and human capital per CHAPTER 12: TECHNOL GROWTH Technological progress and to get close to the golden rule level of capit consumption today vs. consumption tomo et of skills of workers in an economy the greater the productivity
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