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CHAPTER 7
Economic Growth I
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Production function
Consumption function
CHAPTER 7
Economic Growth I
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Amount of Output per worker (Y/L) is the function of amount of capital per worker (K/L) .
CHAPTER 7
Economic Growth I
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y =
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Economic Growth I
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Note: When capital per worker is high, extra unit of capital produces lower output Vice Versa.
f(k)
1
MPK
Economic Growth I
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Economic Growth I
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y = (1-s)y + i
i = sy
or
devoted to investment.
CHAPTER 7
Economic Growth I
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Investment : K
Depreciation : K So, When I > D; K
When I < D; K
When I = D; K- Unchanged (Steady State) Big Question: When does investment exceed depreciation, and when does it fall short of it?
CHAPTER 7
Economic Growth I
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savings and/or investment at different capital stocks can be presented as a part of the total output (Income).
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Economic Growth I
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Steady State
Economic Growth I
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Economic Growth I
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Economic Growth I
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k* k1*
k
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Economic Growth I
Bench mark for highest level of movement of steady state The Golden Rule level of capital accumulation is the steady state with the highest level of consumption.
ir = dk y = f(k)
C*gold
i = s f(k)
I*gold
k*gold
Economic Growth I
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Economic Growth I
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In the real world, there are many types, which we can divide into three categories: private capital stock public infrastructure human capital: the knowledge and skills that workers acquire through education.
How should we allocate investment among these types?
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Economic Growth I
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CHAPTER 7
Economic Growth I
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Economic Growth I
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Economic Growth I
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Thank You
CHAPTER 7
Economic Growth I
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