Agenda. Long-Run Economic Growth, Part 1. The Sources of Economic Growth. Long-Run Economic Growth. The Sources of Economic Growth

Save this PDF as:

Size: px
Start display at page:

Download "Agenda. Long-Run Economic Growth, Part 1. The Sources of Economic Growth. Long-Run Economic Growth. The Sources of Economic Growth"

Transcription

1 Agenda The Sources of Economic Growth Long-Run Economic Growth, Part 1 Growth Dynamics: Long-Run Economic Growth Countries have grown at very different rates over long spans of time. The Sources of Economic Growth The economy s production function is: Y = AF(K, N) The growth accounting formula: Y/Y = A/A + a K K/K + a N N/N The a terms are the output elasticities with respect to the K and N inputs

2 The Sources of Economic Growth According to the growth accounting formula: Y/Y = A/A + a K K/K + a N N/N A rise of 10% in A raises output by 10%. A rise of 10% in K raises output by a K times 10%. The Sources of Economic Growth Accounting for Growth: Collect data on Y/Y, K/K, and N/N. Adjust for quality changes. Estimate a K and a N from historical data. A rise of 10% in N raises output by a N times 10% The Sources of Economic Growth Table 6.3 Sources of Economic Growth Accounting for Growth: Calculate the contribution of K as a K K/K. Calculate the contribution of N as a N N/N. Calculate productivity growth as the residual: A/A = Y/Y a K K/K a N N/N

3 The Sources of Economic Growth Accounting for Growth: Why the post-1973 productivity slowdown? Measurement inadequate accounting for quality improvements. The legal and human environment regulations for pollution control and worker safety, crime, and declines in educational quality. The Sources of Economic Growth Accounting for Growth: Why the post-1973 productivity slowdown? Oil prices huge increase in oil prices reduced productivity of capital and labor, especially in basic industries. New industrial revolution learning process for information technology from 1973 to 1990 meant slower growth Growth Dynamics: Three basic questions about growth: What is the relationship between the long-run standard of living and the saving rate, population growth rate, and rate of technical progress? How does economic growth change over time? Will it speed up, slow down, or stabilize? Basic assumptions: Population and work force grow at same rate n. Economy is closed (i.e., NX = 0) and G = 0. C = Y I Are there economic forces that will allow poorer countries to catch up to richer countries?

4 The Per-Worker Production Function The per-worker production function is: The Per-Worker Production Function = A 0 f() or y = A 0 f(k) or k is called the capital-labor ratio. Assume no productivity growth, i.e., A is fixed The Per-Worker Production Function What happens if: N changes? K changes? A changes? Changes in N or K = A 0 *f()

5 Changes in A = A 0 *f() The Per-Worker Saving Function The per-worker saving function: Assume that saving is proportional to income: S = sy where s is the saving rate and is between 0 and 1. In per-worker terms, this would be: S/N = s The Per-Worker Production, Saving Functions The Per-Worker Production, Saving Functions What happens if: s changes? A changes?

6 Changes is s = A 0 *f() Changes in A = A 0 *f() S/N = s * = s *A 0 *f() S/N = s * = s *A 0 *f() Gross Investment Gross investment, I, must: Replace worn out capital, dk, and Expand the capital stock, kk I = dk + kk = (k + d)k Or, in per-worker terms: Balanced Investment Function Balanced Investment, I b, is defined as: The gross investment that is required to keep steady at its current level. If is constant, then ΔK/K = ΔN/N, or k = n I/N = (k + d)

7 Balanced Investment Function The Per-Worker Balanced Investment Function If and I/N = (k + d) k = n Then balanced investment is given by: I b /N = (n + d) The Per-Worker Balanced Investment Function What happens if: Changes in n n changes? d changes? I b /N = (n + d)

8 Changes in d combines: I b /N = (n + d) The per-worker production function, The per-worker saving function, and The per-worker balanced investment function. Initially assumes that A is constant. So there is no productivity growth Determining the Steady State How fast is the economy growing at A? At the steady state, is constant. Therefore, ΔY/Y = ΔN/N The economy grows at the same rate as the labor force

9 How fast is the capital stock growing at A? At the steady state, is constant. Therefore, in a steady state: ΔY/Y = ΔN/N = ΔK/K Therefore, ΔK/K = ΔN/N so and are constant over time, assuming no productivity growth. The capital stock grows at the same rate as the labor force Disequilibrium dynamics Disequilibrium dynamics: What if the economy is not at its steady-state? Suppose () 1 < () A. () A (S/N) A = (I b /N) A A = A*f() I b /N = (n + d) S/N = s*a*f() () A

10 Disequilibrium dynamics: What adjustment mechanism moves the economy? If() 1 < () A, then at () 1, S/N > I b /N. Disequilibrium dynamics: What if the economy is not at its steady-state? Suppose () 1 > () A. If S/N > I b /N, then will increase. This process will continue until = () A Disequilibrium dynamics () A = A*f() Disequilibrium dynamics: I b /N = (n + d) What adjustment mechanism moves the economy? If() 1 > () A, then at () 1, S/N < I b /N. (S/N) A = (I b /N) A A S/N = s*a*f() If S/N < I b /N, then will decrease. This process will continue until = () A. () A

11 Disequilibrium dynamics: The growth process is stable. The economy will always converge over time to the SAME steady state. However, growth rates during the transition period will be different. With no productivity growth: The economy reaches a steady state, with a constant capital-to-labor ratio,, and with constant output-per-worker,. When < () A, ΔY/Y > ΔN/N. When > () A, ΔK/K < ΔN/N Key Diagram #4: Key Diagram #4: () A = A*f() Factors that Shift the: (S/N) A = (I b /N) A A I b /N = (n + d) S/N = s*a*f() Production Function: A Saving Function: s and A Balanced Investment Function: n and d () A

Chapter 6 Long-Run Economic Growth

Chapter 6 Long-Run Economic Growth Multiple Choice Questions 1. Between 1870 and 1996, among the United States, Germany, Japan, and Australia, grew at the fastest rate and grew at the slowest rate. (a)

Agenda. Long-Run Economic Growth, Part 2. The Solow Model. The Solow Model. Fundamental Determinants of Living Standards. Endogenous Growth Theory.

Agenda Fundamental Determinants of Living Standards. Long-Run Economic Growth, Part 2 Endogenous Growth Theory. Policies to Raise Long-Run Living Standards. 8-1 8-2 The saving rate. Increasing the saving

Assignment 3. Chapter 7 Chapter 8. Last Name. First Name. Page 1

Assignment 3 Last Name First Name Chapter 7 Chapter 8 1 a b c d 1 a b c d 2 a b c d 2 a b c d 3 a b c d 3 a b c d 4 a b c d 4 a b c d 5 a b c d 5 a b c d 6 a b c d 6 a b c d 7 a b c d 7 a b c d 8 a b c

Long-Run Economic Growth. Chapter 4.3 and 4.4

Long-Run Economic Growth Chapter 4.3 and 4.4 Outline Malthusian stagnation and the demographic transition The Solow growth model Ch.2 Economic Performance 1 slide 1 4.3 Malthusian Stagnation and the Demographic

The Solow Model. Savings and Leakages from Per Capita Capital. (n+d)k. sk^alpha. k*: steady state 0 1 2.22 3 4. Per Capita Capital, k

Savings and Leakages from Per Capita Capital 0.1.2.3.4.5 The Solow Model (n+d)k sk^alpha k*: steady state 0 1 2.22 3 4 Per Capita Capital, k Pop. growth and depreciation Savings In the diagram... sy =

The Golden Rule. Where investment I is equal to the savings rate s times total production Y: So consumption per worker C/L is equal to:

The Golden Rule Choosing a National Savings Rate What can we say about economic policy and long-run growth? To keep matters simple, let us assume that the government can by proper fiscal and monetary policies

GDP: The market value of final goods and services, newly produced WITHIN a nation during a fixed period.

GDP: The market value of final goods and services, newly produced WITHIN a nation during a fixed period. Value added: Value of output (market value) purchased inputs (e.g. intermediate goods) GDP is a

The Neo-classical Growth Model (also known as the Solow Growth Model)

The Neo-classical Growth Model (also known as the Solow Growth Model) There are many factors that influence the growth rate of economies. Among them are the quantity of physical capital (K), the level

Anation s ability to provide improving standards of living for its people

Chapter 6 Long-Run Economic Growth Anation s ability to provide improving standards of living for its people depends crucially on its long-run rate of economic growth. Over a long period of time, even

Review Questions - CHAPTER 8

Review Questions - CHAPTER 8 1. The formula for steady-state consumption per worker (c*) as a function of output per worker and investment per worker is: A) c* = f(k*) δk*. B) c* = f(k*) + δk*. C) c* =

Agenda. Productivity, Output, and Employment, Part 1. The Production Function. The Production Function. The Production Function. The Demand for Labor

Agenda Productivity, Output, and Employment, Part 1 3-1 3-2 A production function shows how businesses transform factors of production into output of goods and services through the applications of technology.

Chapter 6 Economic Growth: Malthus and Solow

Chapter 6 Economic Growth: Malthus and Solow Overview This chapter first examines growth under an early growth model based on the writings of Thomas Malthus. The model predicts that the standard of living,

Name: Final Exam Econ 219 Spring You can skip one multiple choice question. Indicate clearly which one

Name: Final Exam Econ 219 Spring 2005 This is a closed book exam. You are required to abide all the rules of the Student Conduct Code of the University of Connecticut. You can skip one multiple choice

Macroeconomics Lecture 1: The Solow Growth Model

Macroeconomics Lecture 1: The Solow Growth Model Richard G. Pierse 1 Introduction One of the most important long-run issues in macroeconomics is understanding growth. Why do economies grow and what determines

Finance 30220 Solutions to Problem Set #3. Year Real GDP Real Capital Employment

Finance 00 Solutions to Problem Set # ) Consider the following data from the US economy. Year Real GDP Real Capital Employment Stock 980 5,80 7,446 90,800 990 7,646 8,564 09,5 Assume that production can

k = sf(k) (δ + n + g)k = 0. sy (δ + n + g)y 2 = 0. Solving this, we find the steady-state value of y:

CHAPTER 8 Economic Growth II Questions for Review 1. In the Solow model, we find that only technological progress can affect the steady-state rate of growth in income per worker. Growth in the capital

Long Run Economic Growth Agenda. Long-run Economic Growth. Long-run Growth Model. Long-run Economic Growth. Determinants of Long-run Growth

Long Run Economic Growth Agenda Long-run economic growth. Determinants of long-run growth. Production functions. Long-run Economic Growth Output is measured by real GDP per capita. This measures our (material)

In the basic Solow model, growth occurs only as a result of factor accumulation. 2. Capital is accumulated as a result of savings behaviour.

Technological Progress in the Solow Model In the basic Solow model, growth occurs only as a result of factor accumulation. There are two factors, labour and capital 1. Labour grows exogenously through

Lecture 6: The neo-classical growth model

Lecture 6: The neo-classical growth model February 23, 2009 1 The main sources of divergence in GDP per capita across countries A first source of difference in GDP per capita is the stock of physical capital.

University of Saskatchewan Department of Economics Economics 414.3 Homework #1

Homework #1 1. In 1900 GDP per capita in Japan (measured in 2000 dollars) was \$1,433. In 2000 it was \$26,375. (a) Calculate the growth rate of income per capita in Japan over this century. (b) Now suppose

Growth Accounting. will be at some particular time t as a function of the economy s stock of capital K t

Growth Accounting The Solow growth model presents a theoretical framework for understanding the sources of economic growth, and the consequences for long-run growth of changes in the economic environment

Chapters 7 and 8 Solow Growth Model Basics

Chapters 7 and 8 Solow Growth Model Basics The Solow growth model breaks the growth of economies down into basics. It starts with our production function Y = F (K, L) and puts in per-worker terms. Y L

CHAPTER 7 Economic Growth I

CHAPTER 7 Economic Growth I Questions for Review 1. In the Solow growth model, a high saving rate leads to a large steady-state capital stock and a high level of steady-state output. A low saving rate

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 35 questions, each 1.

AUBG ECO 302 A F I N A L E X A M Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 35 questions, each 1.5 points 1) The Bigdrill company drills

Name: Date: 3. Variables that a model tries to explain are called: A. endogenous. B. exogenous. C. market clearing. D. fixed.

Name: Date: 1 A measure of how fast prices are rising is called the: A growth rate of real GDP B inflation rate C unemployment rate D market-clearing rate 2 Compared with a recession, real GDP during a

Chapter 9. Practice Problems

Chapter 9 Practice Problems 1. Which of the following is an important measure of economic growth over time? A) inflation B) increases in real per capita GDP C) decline in real interest rates D) increases

A decline in the stock market, which makes consumers poorer, would cause the aggregate demand curve to shift to the left.

Economics 304 Final Exam Fall 2000 PART I: TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. (1.5 pts. each) A decline in the stock market, which makes consumers poorer,

Agenda. The IS LM Model, Part 2. The Demand for Money. The Demand for Money. The Demand for Money. Asset Market Equilibrium.

Agenda The IS LM Model, Part 2 Asset Market Equilibrium The LM Curve 13-1 13-2 The demand for money is the quantity of money people want to hold in their portfolios. The demand for money depends on expected

Discussion #1: Chapter 4: The economy in the very long run: The Economics of Growth

Discussion #1: Chapter 4: The economy in the very long run: The Economics of Growth 1. Technological advances increase output in the short run but have no impact on long-run growth in output per capita,

Econ 201 Macroeconomic Theory I Assignment 1 (Chapter 10, 11,12)

Econ 201 Macroeconomic Theory I Assignment 1 (Chapter 10, 11,12) 1. Label each of the following statement true, false, or uncertain. Explain briefly. a) In the long-run, capital accumulation affects the

Chapter 7: Economic Growth part 1

Chapter 7: Economic Growth part 1 Learn the closed economy Solow model See how a country s standard of living depends on its saving and population growth rates Learn how to use the Golden Rule to find

Economic Growth. Chapter 11

Chapter 11 Economic Growth This chapter examines the determinants of economic growth. A startling fact about economic growth is the large variation in the growth experience of different countries in recent

Economics 304 Fall 2014

Economics 304 Fall 014 Country-Analysis Project Part 4: Economic Growth Analysis Introduction In this part of the project, you will analyze the economic growth performance of your country over the available

Preparation course MSc Business&Econonomics: Economic Growth

Preparation course MSc Business&Econonomics: Economic Growth Tom-Reiel Heggedal Economics Department 2014 TRH (Institute) Solow model 2014 1 / 27 Theory and models Objective of this lecture: learn Solow

Chapter 6: Economic Growth: Malthus to Solow

Chapter 6: Economic Growth: Malthus to Solow El-hadj Bah EC 313-Intermediate Macroeconomics Second Summer Session Arizona State University July, 2007 1 Economic Growth Facts 1. Pre-1800 (Industrial Revolution):

TRADE AND INVESTMENT IN THE NATIONAL ACCOUNTS This text accompanies the material covered in class.

TRADE AND INVESTMENT IN THE NATIONAL ACCOUNTS This text accompanies the material covered in class. 1 Definition of some core variables Imports (flow): Q t Exports (flow): X t Net exports (or Trade balance)

Ghana South Korea United States. Real GDP per capita (2005 dollars) Per centage of 1960 real GDP per capita. 2009 real GDP per capita

Long-Run Economic Growth chapter: 24 9 ECONOMICS MACROECONOMICS 1. The accompanying table shows data from the Penn World Table, Version 7.0, for real GDP in 2005 U.S. dollars for Argentina, Ghana, South

Economic Growth: Malthus and Solow

Economic Growth: Malthus and Solow Economics 3307 - Intermediate Macroeconomics Aaron Hedlund Baylor University Fall 2013 Econ 3307 (Baylor University) Malthus and Solow Fall 2013 1 / 35 Introduction Two

Advanced Macroeconomics The Solow growth model Günter W. Beck University of Mainz November 23, 2010 Günter W. Beck Advanced Macroeconomics November 23, 2010 1 / 34 Overview 1 Some empirical facts 2 The

Working with the Solow Growth Model

CHAPTER 4 Monkey Business/Fotolia Working with the Solow Growth Model N ow that we have constructed the Solow growth model, we can put it into action by seeing how various economic changes affect growth

Lecture 11: Malthusian Model of Economic Growth

Lecture 11: Malthusian Model of Economic Growth Nicolas Roys University of Wisconsin Madison Econ 302 - Spring 2015 Topics of today s class Last Lecture: I Introduction to Economic Growth Today: I Malthusian

Problem Set #1: Exogenous Growth Models

University of Warwick EC9A2 Advanced Macroeconomic Analysis Problem Set #1: Exogenous Growth Models Jorge F. Chavez December 3, 2012 Question 1 Production is given by: Y t F (K t, L t ) = AK α t L 1 α

Agenda. Saving and Investment in the Open Economy. Balance of Payments Accounts. Balance of Payments Accounting. Balance of Payments Accounting.

Agenda. Saving and Investment in the Open Economy Goods Market Equilibrium in an Open Economy. Saving and Investment in a Small Open Economy. Saving and Investment in a Large Open Economy. 7-1 7-2 Balance

Economic Growth. (c) Copyright 1999 by Douglas H. Joines 1

Economic Growth (c) Copyright 1999 by Douglas H. Joines 1 Module Objectives Know what determines the growth rates of aggregate and per capita GDP Distinguish factors that affect the economy s growth rate

I d ( r; MPK f, τ) Y < C d +I d +G

1. Use the IS-LM model to determine the effects of each of the following on the general equilibrium values of the real wage, employment, output, the real interest rate, consumption, investment, and the

E322_Summer_08_Intermediate Macroeconomics. Final Exam: Sample Questions

E322_Summer_08_Intermediate Macroeconomics Final Exam: Sample Questions Chapter_05 1. A competitive equilibrium is Pareto optimal if there is no way to rearrange or to reallocate goods so that (a) anyone

Lecture 1 Growth. 1. Solow Growth Model with no Technical Progress. Assumptions

Lecture 1 Growth There are vast differences in the per-capita income and the standards of living across countries. The average per-capita income of industrialized countries is about ten-times the average

Productioin OVERVIEW. WSG5 7/7/03 4:35 PM Page 63. Copyright 2003 by Academic Press. All rights of reproduction in any form reserved.

WSG5 7/7/03 4:35 PM Page 63 5 Productioin OVERVIEW This chapter reviews the general problem of transforming productive resources in goods and services for sale in the market. A production function is the

Economic Growth: Lecture 2: The Solow Growth Model

14.452 Economic Growth: Lecture 2: The Solow Growth Model Daron Acemoglu MIT October 29, 2009. Daron Acemoglu (MIT) Economic Growth Lecture 2 October 29, 2009. 1 / 68 Transitional Dynamics in the Discrete

Chapter 25. Questions

Chapter 25 Questions 4. Expansionary gaps tend to raise inflation, and recessionary gaps tend to reduce it. If an expansionary gap exists, for example, firms are producing above normal capacity. Eventually

What Drives the Rapid Economic Growth in Azerbaijan? - An Application of the Solow Model

What Drives the Rapid Economic Growth in Azerbaijan? - An Application of the Solow Model Shaokai Huang, Master Candidate SHU-UTS SILC Business School, Shanghai University doi: 10.19044/esj.2016.v12n22p380

Econ 100B: Macroeconomic Analysis Fall Problem Set #3 ANSWERS (Due September 15-16, 2008)

Econ 100B: Macroeconomic Analysis Fall 2008 Problem Set #3 ANSWERS (Due September 15-16, 2008) A. On one side of a single sheet of paper: 1. Clearly and accurately draw and label a diagram of the Production

Real GDP. Percentage of 1960 real GDP per capita. per capita. 2000 real GDP. (1996 dollars) per capita. Real GDP

KrugmanMacro_SM_Ch08.qxp 11/9/05 4:47 PM Page 99 Long-Run Economic Growth 1. The accompanying table shows data from the Penn World Table, Version 6.1, for real GDP in 1996 U.S. dollars for Argentina, Ghana,

Lecture 14 More on Real Business Cycles. Noah Williams

Lecture 14 More on Real Business Cycles Noah Williams University of Wisconsin - Madison Economics 312 Optimality Conditions Euler equation under uncertainty: u C (C t, 1 N t) = βe t [u C (C t+1, 1 N t+1)

This paper is not to be removed from the Examination Halls

This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON EC2065 ZA BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences, the Diplomas

Economic Growth I: Capital Accumulation and Population Growth

CHAPTER 8 : Capital Accumulation and Population Growth Modified for ECON 2204 by Bob Murphy 2016 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN: the closed economy Solow model how

Chapter 4 Technological Progress and Economic Growth

Chapter 4 Technological Progress and Economic Growth 4.1 Introduction Technical progress is defined as new, and better ways of doing things, and new techniques for using scarce resources more productively.

MASTER IN ENGINEERING AND TECHNOLOGY MANAGEMENT

MASTER IN ENGINEERING AND TECHNOLOGY MANAGEMENT ECONOMICS OF GROWTH AND INNOVATION Lecture 1, January 23, 2004 Theories of Economic Growth 1. Introduction 2. Exogenous Growth The Solow Model Mandatory

MACROECONOMICS SECTION

MACROECONOMICS SECTION GENERAL TIPS Be sure every graph is carefully labeled and explained. Every answer must include a section that contains a response to WHY the result holds. Good resources include

Economics Macroeconomic Theory

Economics 202.04 Macroeconomic Theory Spring 2003 Mid-Term Exam, 27 February 2003 Please answer FIVE QUESTIONS FROM SECTION A and TWO QUESTIONS FROM SECTION B. SECTION A and B each carry 50% of the marks.

Agenda. The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis, Part 3. Disequilibrium in the AD-AS model

Agenda The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis, art 3 rice Adjustment and the Attainment of General Equilibrium 13-1 13-2 General equilibrium in the AD-AS model Disequilibrium

Monetary Economics Note 3

316-466 Monetary Economics Note 3 In this note, I discuss some handy facts about steady states and local approximations to them in the context of the Solow (1956) growth model. Setup Consider the Solow

Generic Analysis of Endogenous Growth Models

c December 24, 2016, Christopher D. Carroll Endogenous Generic Analysis of Endogenous Growth Models The neoclassical theory of economic growth, as formulated by Solow (1956), and Cass (1965)-Koopmans (1965),

Capital in the 21 st century

Capital in the 21 st century Thomas Piketty Paris School of Economics The Hague, November 5 2014 This presentation is based upon Capital in the 21 st century (Harvard University Press, March 2014) This

Aggregate Demand and Aggregate Supply Ing. Mansoor Maitah Ph.D. et Ph.D.

Aggregate Demand and Aggregate Supply Ing. Mansoor Maitah Ph.D. et Ph.D. Aggregate Demand and Aggregate Supply Economic fluctuations, also called business cycles, are movements of GDP away from potential

Capital in the 21 st century. Thomas Piketty Paris School of Economics March 2014

Capital in the 21 st century Thomas Piketty Paris School of Economics March 2014 This presentation is based upon Capital in the 21 st century (Harvard University Press, March 2014) This book studies the

MA Macroeconomics 10. Growth Accounting

MA Macroeconomics 10. Growth Accounting Karl Whelan School of Economics, UCD Autumn 2014 Karl Whelan (UCD) Growth Accounting Autumn 2014 1 / 20 Growth Accounting The final part of this course will focus

Homework #6 - Answers. Uses of Macro Policy Due April 20

Page 1 of 8 Uses of Macro Policy ue April 20 Answer all questions on these sheets, adding extra sheets where necessary. 1. Suppose that the government were to increase its purchases of goods and services

Intermediate Macroeconomics

Intermediate Macroeconomics Lecture 2 - Growth Facts & the Malthusian Model Zsófia L. Bárány Sciences Po 2014 January Hall and Jones 1999, QJE: In 1988 output per worker in the United States was more than

INVESTMENT DECISIONS and PROFIT MAXIMIZATION

Lecture 6 Investment Decisions The Digital Economist Investment is the act of acquiring income-producing assets, known as physical capital, either as additions to existing assets or to replace assets that

Intermediate Macroeconomics: Economic Growth and the Solow Model

Intermediate Macroeconomics: Economic Growth and the Solow Model Eric Sims University of Notre Dame Fall 2012 1 Introduction We begin the course with a discussion of economic growth. Technically growth

14.452 Economic Growth: Lectures 2 and 3: The Solow Growth Model

14.452 Economic Growth: Lectures 2 and 3: The Solow Growth Model Daron Acemoglu MIT November 1 and 3, 2011. Daron Acemoglu (MIT) Economic Growth Lectures 2 and 3 November 1 and 3, 2011. 1 / 96 Solow Growth

Technology and Economic Growth

Growth Accounting Formula Technology and Economic Growth A. %ΔY = %ΔA + (2/3) %ΔN + (1/3) %ΔK B. Ex. Suppose labor, capital, and technology each grow at 1% a year. %ΔY = 1 + (2/3) 1 + (1/3) 1 = 2 C. Growth

Labor Demand. Labor Economics VSE Praha March 2009

Labor Demand Labor Economics VSE Praha March 2009 Labor Economics: Outline Labor Supply Labor Demand Equilibrium in Labor Market et cetera Labor Demand Model: Firms Firm s role in: Labor Market consumes

VI. Real Business Cycles Models Introduction Business cycle research studies the causes and consequences of the recurrent expansions and contractions in aggregate economic activity that occur in most industrialized

PRINCIPLES OF MACROECONOMICS. Chapter 25 Production and Growth

PRINCIPLES OF MACROECONOMICS Chapter 25 Production and Growth Overview In this chapter we will examine the determinants of both the level and the growth rate of the production of output in the long run.

Agenda. The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis, Part 2. The AD Curve. Aggregate Demand and Aggregate Supply

Agenda Aggregate Demand and Aggregate Supply The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis, art 2 13-1 13-2 Aggregate Demand and Aggregate Supply The AD-AS model is derived from

Chapter 14 How Economies Grow and Develop Macroeconomics In Context (Goodwin, et al.)

Chapter 14 How Economies Grow and Develop Macroeconomics In Context (Goodwin, et al.) Chapter Overview This chapter discusses theories of economic growth, highlighting the Solow growth model and the importance

Long-Run Average Cost. Econ 410: Micro Theory. Long-Run Average Cost. Long-Run Average Cost. Economies of Scale & Scope Minimizing Cost Mathematically

Slide 1 Slide 3 Econ 410: Micro Theory & Scope Minimizing Cost Mathematically Friday, November 9 th, 2007 Cost But, at some point, average costs for a firm will tend to increase. Why? Factory space and

Macroeconomics Questions 2013 Economics Honors Exam

Macroeconomics Questions 2013 Economics Honors Exam Question 1. (40 minutes) The savings rates of Chinese households are among the highest in the world. This question asks you to analyze the consequences

Job Generation and Growth Decomposition Tool

Poverty Reduction Group Poverty Reduction and Economic Management (PREM) World Bank Job Generation and Growth Decomposition Tool Understanding the Sectoral Pattern of Growth and its Employment and Productivity

Important distinction between BUSINESS CYCLES (cyclical fluctuations) and LONG-RUN GROWTH (secular trend).

THE LONG VIEW: ECONOMIC GROWTH Important distinction between BUSINESS CYCLES (cyclical fluctuations) and LONG-RUN GROWTH (secular trend). The most striking feature of U.S. economic history since 1870 is

. consumption and investment spending.

Chapter 10 1. The aggregate demand curve: A. is upward sloping because a higher price level is necessary to make production profitable as production costs rise. B. is downward sloping because production

8. Average product reaches a maximum when labor equals A) 100 B) 200 C) 300 D) 400

Ch. 6 1. The production function represents A) the quantity of inputs necessary to produce a given level of output. B) the various recipes for producing a given level of output. C) the minimum amounts

Macroeconomic Analysis Econ 6022 Level I

1 / 66 Macroeconomic Analysis Econ 6022 Level I Lecture 8 Fall, 2011 2 / 66 Business Cycle Analysis: A Preview What explains business cycle fluctuations? Two major business cycle theories - Classical theory

Practice Problems on Production Function and Labor Market

Practice Problems on Production Function and Labor Market 1- What is a production function? What are some factors that can cause a nation s production function to shift over time? What do you have to know

Econ 102 Economic Growth Solutions. 2. Discuss how and why each of the following might affect US per capita GDP growth:

Econ 102 Economic Growth Solutions 2. Discuss how and why each of the following might affect US per capita GDP growth: a) An increase of foreign direct investment into the US from Europe is caused by a

Worksheet on induction Calculus I Fall 2006 First, let us explain the use of for summation. The notation

Worksheet on induction MA113 Calculus I Fall 2006 First, let us explain the use of for summation. The notation f(k) means to evaluate the function f(k) at k = 1, 2,..., n and add up the results. In other

ECON 1010 Principles of Macroeconomics Exam #2. Section A: Multiple Choice Questions. (30 points; 2 pts each)

ECON 1010 Principles of Macroeconomics Exam #2 Section A: Multiple Choice Questions. (30 points; 2 pts each) #1. If the price level in the economy and the nominal wages both doubled, then real wages would

Fuld Skolerapport for Søhusskolen, i Odense kommune, for skoleår 2013/2014 for klassetrin(ene) 9. med reference Tilsvarende klassetrin i kommunen

Side 1 af 41 Side 2 af 41 Side 3 af 41 Side 4 af 41 Side 5 af 41 Side 6 af 41 Side 7 af 41 Side 8 af 41 Side 9 af 41 Side 10 af 41 Side 11 af 41 Side 12 af 41 Side 13 af 41 Side 14 af 41 Side 15 af 41

Fuld Skolerapport for Hunderupskolen, i Odense kommune, for skoleår 2013/2014 for klassetrin(ene) 7. med reference Tilsvarende klassetrin i kommunen

Side 1 af 43 Side 2 af 43 Side 3 af 43 Side 4 af 43 Side 5 af 43 Side 6 af 43 Side 7 af 43 Side 8 af 43 Side 9 af 43 Side 10 af 43 Side 11 af 43 Side 12 af 43 Side 13 af 43 Side 14 af 43 Side 15 af 43

Chapter 9 The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis Chapter Outline The FE Line: Equilibrium in the Labor Market The IS Curve: Equilibrium in the Goods Market The LM Curve:

This paper is not to be removed from the Examination Halls

~~EC2065 ZA d0 This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON EC2065 ZA BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences,

Answers to Text Questions and Problems Chapter 4

Answers to Text Questions and Problems Chapter 4 Answers to Review Questions 1. The catastrophic economic collapse of the 1930s convinced economists and policymakers that there were major gaps in their

Long Run Growth Solow s Neoclassical Growth Model

Long Run Growth Solow s Neoclassical Growth Model 1 Simple Growth Facts Growth in real GDP per capita is non trivial, but only really since Industrial Revolution Dispersion in real GDP per capita across

Economic Growth. Spring 2013

Economic Growth Spring 2013 1 The Solow growth model Basic building blocks of the model A production function Y t = F (K t, L t, A t ) This is a hugely important concept Once we assume this, then we are

CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY

CHAPTER 7: AGGREGATE DEMAND AND AGGREGATE SUPPLY Learning goals of this chapter: What forces bring persistent and rapid expansion of real GDP? What causes inflation? Why do we have business cycles? How