2. Capital and the Solow-Swann Model Flashcards
What are the fundemental factors for growth?
Factors which are usually constant or hard to change, which have indirect effects on growth
- Geography
- Culture
- Institutional Quality
- Weather
What are the proximate factors for growth?
Factors which directly effect economic growth
- Capital
- Workers
- Worker Skill
- Technology
What are the properties of capital?
- Is produced
- Is Rival
- Is productive
- Depreciates
- Earns a return
State the Cobb-Douglas Production Function
State the per capita Cobb-Douglass Production Function
Prove it
Derive MPK from the Cobb Douglas Production Function
Show diminishing returns to Labour in the Cobb-Douglas Production Function
Derivitive of MPL is negative
Show diminishing returns to Capital in the Cobb-Douglas Production Function
Derivitive of MPK is negative
What are the two properties of the Cobb-Douglas Production Function
- Constant returns to scale
- Diminishing Marginal Returns to Input
* Draw a Solow-Swann Diagram and explain why it tends to equilibrium from higher and lower levels of per worker capital
When there is k” level of capital, theres is a greater decrease in per worker capital (k(d+n)) then there is savings to invest in capital (0y), As a result, capital per worker decreases until it reaches k*, where savings perfectly matches the requierd replacement investment.
When there is k’ level of cpaital, there is a higher level of savings then replacement investment, so more capital will be produced and k will rise until it reaches k*.
*Prove that Alpha is the share of output going to capital owners
MPK is the average income of capital owners so…
Alpha.
*Draw a time series diagram of y and k after an increase in technology in the Solow-Swann Model
*What is the equation for the equilibrium output level (per capita) in the Solow-Swann Model
