Neoclassical growth model

Neoclassical growth model

  • Model growth of GDP per worker via capital accumulation
  • Key elements:
  • Production function (GDP depends on technology, labour and physical capital)
  • Capital accumulation equation (change in net capital stock equals gross investment [=savings] less depreciation).
  • Solow-Swan assume:
  • diminishing returns to capital or labour (the ‘law’ of diminishing returns), and
  • constant returns to scale (e.g. doubling K and L, doubles Y).
  • For example, the Cobb-Douglas production function
  • Questions:
  • how does capital accumulation (net investment) affect growth?
  • what is role of savings, depreciation and population growth?
  • what is role of technology?

GDP per worker and k

Assume A and L constant (no technology growth or labour force growth)

Graphical analysis of

Solow-Swan equilibrium

What happens if savings increased?

  • raising saving increases k* and y*, but long run growth still zero (e.g. s1>s0 below)
  • call this a “levels effect”
  • growth increases in short run (as economy moves to new steady state), but no permanent ‘growth effect’.

Writing assist: 論文代寫

2015-01-18T20:41:09+00:00July 3rd, 2014|講義|