chapter 8 Flashcards
do some countries have higher income than others?
yes
can we compare the income of one country to another?
yes, also province to province, state to state and province to state
what are the 3 reasons why output can vary between countries?
technology
labour,L
capital,K
under the solow growth model, what does the production function exhibit?
constant returns to scale
what does “y” denote?
output per worker
what does “k” denote?
capital per worker
what is the production function under the solow growth model?
y=f(k)
when is capital most valuable?
when there is less capital
when does capital have the highest marginal product of capital (MPK)?
when there is less capital
what is the slope of the y= f(k) curve?
the marginal product of capital (MPK)
when is output per worker impacted a lot?
when there is low capital per worker the output per worker is weird
what is C/L?
consumption per worker
what is I/L?
investment per worker
what is consumption a function of?
investment
savings
what is the formula for consumption?
C= (1-s) y
what is the formula for investment?
i=sy
how is the change in capital found?
investment - depreciation (beta) times capital
how can there be a negative growth in capital overtime?
if investment is less than depreciation times capital
how can there be a growth in capital overtime?
if investment is greater than depreciation times capital
when is there a steady state of growth of capital?
when the investment (i) is equal to deprecation of capital
what does “I” denote?
investment per worker
what can cause the slide pf the sy=I curve to change?
when you change savings
when a countries capital stock falls but the saving rate stays the same, how will the growth of that countries capital be?
it will grow rapidly until it hits the steady state
when a countries capital per worker increases how does it impact its output per worker, savings per worker and consumption per worker?
savings per worker will increase
output per worker will increase
no effect on consumption per worker because the increase in savings and y are equal
what is consumption in the solo growth model?
c= (1-s) y
what is invsetment in the solo growth model?
I=sy
what is the rate of savings?
the fraction of output devoted to investment
what is depreciation?
the amount of capital stock that is lost and needed to be replaced every year
what is the formula for the change in capital stock (k)?
investment (i)- depreciation of capital
at any capital point of the investment curve and the deprecation curve that’s before the equilibrium what does that show?
if it is before the points at where the curves cross the capital stock is growing
at the equilibrium between the investment curve and depreciation curve, how is capital growing?
it is a steady state where the capital is growing at the same rate as it is depreciating
when the capital point is past the equilibrium to the left, how is the growth of capital impacted?
the rate of capital that is depreciating is more than the rate of the purchase of capital causing k to shrink
when the savings rate changes, how does it impact the investment curve?
it will shift the investment curve
if the savings rate increases how does that shift the investment curve?
it will shift it up
if the savings rate decreases how does that shift the investment curve?
it shifts the investment curve down
over time how will an increase in savings rate change c,i and y?
right away after the savings rate changes consumption will go down and investment will go up and y does not change right away
over time investment will increase to new steady level, c will increase to new steady level due to y increasing and c and I are a fraction of y, now larger
y will increase overtime due to the increase in capital to a new steady level
what is the golden rule steady state?
the steady state of capital that maximizes consumption
how do you find the k that maximizes consumption?
it is the k where MPK is equal to depreciation or when the slopes of the curve are equal
what does population grow by?
it grows at a constant rate of n
as population grows how does that impact capital per worker (k)?
capital per worker (k) shrinks due to the labour force increasing and K/L shrinks
what is the steady state when there is population growth?
I= (depreciation+n) k
investment most add more than the deprecation rate and the growth of population
how does population growth change the solow growth model?
the population growth is added to the depreciation curve
when the growth of the population increases, how does that impact y, c and I?
y decreases due to the shift go the depreciation curve
c and I decrease because they are functions of y
c= (1-s)
I=sy
when the population growth increases y,c and I decrease, does it increase it right away or overtime?
it will increase gradually overtime
in a steady state y (output per worker) is not changing overtime, what is happening to total output (Y)?
L is growing at a rate of n so Y is growing at a rate of n
