Review of the previous lecture .1. The Solow growth model shows that, in the long run, a country’s standard. of living depends . • positively on its saving rate • negatively on its population growth rate . Lecture 7 Economic Growth – 1(B) .Instructor: Prof. Abbas Lecture Contents • Steady state .• Golden Rule The equation of motion for k . k = s f(k) – k .• The Solow model’s central equation • Determines behavior of capital over time .• which, in turn, determines behavior of all of the other endogenous. variables because they all depend on k. ., . income per person: y = f(k). consump. per person: c = (1–s) f(k) The steady state . k = s f(k) – k .If investment is just enough to cover depreciation [sf(k) = k ], .then capital per worker will remain constant:. k = 0 .This constant value, denoted k*, is called the steady state capital stock . The steady state Investment . and . sf(k) . k* Capital per . worker, k Moving toward the steady state Investment . k = sf(k) k. and . sf(k) k. investment depreciation k1 k* Capital per . worker, k Moving toward the steady state . Investment . k = sf(k) k. and . sf(k) . k k1 k2 k* Capital per . worker, k Moving toward the steady state . Investment . k = sf(k) k. and . sf(k) . k. investment. depreciation . k2 k* Capital per . worker, k Moving toward the steady state . Investment . k = sf(k) k. and . sf(k) . k k2 k3 k* Capital per . worker, k Moving toward the steady state . Investment . k = sf(k) k. and . sf(k). Summary:. Summary:. As long as k |
