ECONOMIC GROWTH Instructional Web Server经济增长教学网络服务器.pptVIP

Solow’s Model (Modeling economic growth) Solow model I: Constant productivity Assumptions of the model Population grows at rate n L’ = (1 + n)L Population equals labor force No productivity growth Capital depreciates at rate ? 1. Per-capital Income Production function: Y = F(K, L) In “per worker” terms: y = f(k) Relationship between variables: From the above we can get: Per-person or per-capita income level (y) depends on each worker’s capital equipment(k). y=f(k) shows DMR. Can you draw the graph with y and k? Growth rate is measured by the slope of the tangent line of the y or f(k) curve. Growth rate decreases as the per-capita capital stock rises. It is true for all countries- “Convergence” Countries that start further away from the steady state grow faster 2. Actual Supply of Capital Assume FIXED SAVINGS RATE or APS: s =S/N/Y/N = savings /income Given an income of y Actual savings= s · y = s f(k) EXAMPLE Savings rate of 40% s = .4 (you save a fraction of your income) Can you draw the actual savings curve in the previous graph you have drawn? Minimum Capital Requirement to just keep up for each work is proportional to population growth rate(n) and capital depreciation rate(d) Example) Y = 100; L = 20; K = 10 y = Y/L = 5 k = K/L = 10/20 = 0.5 n = 3% ; d = 5% Then you need 8% of capital every year to keep constant each worker’s capital equipment. 4. Equilibrium or Not The Change in capital per worker is the actual supply of capital over the minimum required capital Thus: If ?k 0: economy accumulates capital per worker If ?k 0: economy reduces capital per worker If ?k = 0: constant capital per worker: steady state Graphically Steady-state Per-capita Income or y* = Y/N is determined where s f(k*) = (?+n)k*. Implications of the model The economy converges, over time, to its steady state. If the economy starts BELOW the steady state, it accumulates capital until it reaches the steady state. If the economy starts ABOVE the stead