Int Macro Econ Capital Accumulation
Int Macro Econ Capital Accumulation Economics 5570
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This 2 page Class Notes was uploaded by Ashish Kondoju on Saturday March 12, 2016. The Class Notes belongs to Economics 5570 at Wayne State University taught by Shuan Jung in Spring 2016. Since its upload, it has received 30 views. For similar materials see Intermediate Macroeconomics in Economcs at Wayne State University.
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Date Created: 03/12/16
Capital accumulation Data on infant mortality rates: 20% in the poorest 1/5 of all countries 0.4% in the richest 1/5 In Pakistan, 85% of people live on less than $2/day. One-fourth of the poorest countries have had famines during the past 3 decades. Poverty is associated with oppression of women and minorities. The Solow model due to Robert Solow, won Nobel Prize for contributions to the study of economic growth a major paradigm: widely used in policy making benchmark against which most recent growth theories are compared looks at the determinants of economic growth and the standard of living in the long run 1. K is no longer fixed: investment causes it to grow, depreciation causes it to shrink 2. L is no longer fixed: population growth causes it to grow 3. the consumption function is simpler 4. no G or T (only to simplify presentation; we can still do fiscal policy experiments) 5. cosmetic differences In aggregate terms: Y = F (K, L) Define: y = Y/L = output per worker k = K/L = capital per worker Assume constant returns to scale: zY = F (zK, zL ) for any z > 0 Pick z = 1/L. Then Y/L = F (K/L, 1) y = F (k, 1) y = f(k) where f(k) = F(k, 1) The national income identity Y = C + I (remember, no G ) In “per worker” terms: y = c + i where c = C/L and i = I /L The consumption function s = the saving rate, the fraction of income that is saved (s is an exogenous parameter) Note: s is the only lowercase variable that is not equal to its uppercase version divided by L Consumption function: c = (1–s)y (per worker) Saving and investment saving (per worker)= y – c = y – (1–s)y = sy National income identity is y = c + i Rearrange to get: i = y – c = sy (investment = saving, like in chap. 3!) Using the results above, i = sy = sf(k)
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