Micro Flashcards
Golden rule saving rate
The level of savings that maximises the level of long-run consumption per worker. MR=0
Steady state growth path
The growth path of output per worker for a given saving rate, where growth results from technological progress
Solow growth model
Explains economic growth in terms of the effect on the capital stock and output of a change in investment
Harrod-Domar model
A country’s economic growth is related to the proportion of national income saved and the ratio of capital to output
g=s/k
s = percentage of national income saved
k = marginal capital/output ratio
Capital intensity
The amount of physical capital that workers have to operate with and which can be measured by the amount of capital per worker
Capital accumulation
An increase in capital
Capital deepening
An increase in capital per worker
Capital shallowing
A decrease in capital per worker
Effect of an increase in savings
An increase in savings increase economic growth g=s/k
An increase in savings will cause an increase in the investment curve. As such capital intensity and national income per worker raises
However there in an increase in the required percentage of capital needed to maintain current levels of capital stock
Engel curve
Shows the relationship between a consumer’s income and quality of a good brought
Income effect
An increase in price means good x takes up a greater proportion of a individuals income
Substitution effect
An increase in the price of good x means consumers will switch towards good y
Normal good
Increase in income/price lead to increase in demand
Both the substitution and income effect makes the consumer purchase more
Inferior good
An increase in income/price makes the consumer purchase more
Income effect > substitution effect
Griffin good
An increase in price leads to a higher demand
This is because a Griffin good takes up such a large percentage of income as such when its price increase, individuals are forced to cut other expenditure to buy the good
Substitution effect > income effect
