Neoclassical growth model

Question 1

Kaldor facts

Answer 1

1. GDP per worker grows at a constant rate
2. Capital per worker grows at a constant rate
3. The capital/output ratio is constant
4. The return on capital is constant
5. Real wage per worker grows over time
6. Labor and capital shares in GDP are constant
7. Large differences in growth rates across countries

Question 2

Proposition 1: sufficient conditions for a solution of the problem

Answer 2

Question 3

Remark 4: concavity of a function

Answer 3

Question 4

Conditions for a BGP with secular growth

Answer 4

• CRRA function (this also defines IES that is also constant)
• Labor supply is constant (income and substitution effects must cancel out)
• CRS funcion
• Productivity growth must be labor augmenting

Question 5

IES def

Answer 5

Question 6

Moving from social planer to competitive markets

Answer 6

• Ownership structure
• Markets that are open
• Distinctions between economic agents

Question 7

Formal statement dynamic programming problem

Answer 7

Question 8

Budget constraint, decentralized problem

Answer 8

Remember that here r_t is the rental price of capital