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1、1macroeconomics fifth editionN. Gregory MankiwPowerPointSlides by Ron CronovichCHAPTER SEVEN Economic Growth I macro 2003 Worth Publishers, all rights reserved1Econ 101: Intermediate Macro TheoryLecture notes Professor Cetorelli UC Davis Fall 2003Lecture 62Reading so far Chapter 1: pp. 1 14 Chapter
2、2: pp. 15 23 (bottom section excluded), 24 27 (bottom section excluded), 30 38. Chapter 3: pp. 42 69. Exclude FYI boxes, p. 57, 66 Appendix to Chapter 3, pp. 71-73 Chapter 7, pp. 180 - 19523Reading for next class Chapter 7, pp. 180-205 Dont forget. Homework due in or before class on Friday.CHAPTER 7
3、CHAPTER 7Economic Growth IEconomic Growth Islide 4CobbCobb- -Douglas Production FunctionDouglas Production FunctionSpecial type of production function, with “nice”properties. =1),(LAKLKFYCHAPTER 7CHAPTER 7Economic Growth IEconomic Growth Islide 5Data on U.S. economy, 1960-2000(MPL*L)/Y3CHAPTER 7CHAP
4、TER 7Economic Growth IEconomic Growth Islide 6CobbCobb- -Douglas, cont.Douglas, cont.YLYLLMPLIncomeLaborYKYKKMPKIncomeCapitalYLLAKLLAKMPLYKLAKKLAKMPK=)1 ()1 (11)1 (1)1 (1)1 (11111111=1),(LAKLKFYHence, capital and labor income are a constant share of income. Consistent with data.CHAPTER 7CHAPTER 7Eco
5、nomic Growth IEconomic Growth Islide 7Back to Economic GrowthBack to Economic GrowthCHAPTER 7CHAPTER 7Economic Growth IEconomic Growth Islide 84CHAPTER 7CHAPTER 7Economic Growth IEconomic Growth Islide 9Income and poverty in the world Income and poverty in the world selected countries, 2000selected
6、countries, 20000102030405060708090100$0$5,000$10,000$15,000$20,000Income per capita in dollars% of population living on $2 per day or lessMadagascarIndiaBangladeshNepalBotswanaMexicoChile S. KoreaBrazilRussian FederationThailandPeruChinaKenyaCHAPTER 7CHAPTER 7Economic Growth IEconomic Growth Islide
7、10The The SolowSolow ModelModelHow How SolowSolow model is different from model is different from Chapter 3s modelChapter 3s model1.Kis no longer fixed: investment causes it to grow, depreciation causes it to shrink.2.Lis no longer fixed: population growth causes it to grow. 3. The consumption funct
8、ion is simpler.CHAPTER 7CHAPTER 7Economic Growth IEconomic Growth Islide 11How Solow model is different from How Solow model is different from Chapter 3s modelChapter 3s model4. No Gor T (only to simplify presentation; we can still do fiscal policy experiments)5. Cosmetic differences.5CHAPTER 7CHAPT
9、ER 7Economic Growth IEconomic Growth Islide 12The production functionThe production function? In aggregate terms: Y = F (K, L )? Define: y= Y/L= output per worker k= K/L= capital per worker ? Assume constant returns to scale: zY= F (zK, zL) for any z 0? Pick z= 1/L. Then Y/L= F (K/L, 1) y= F (k, 1)
10、y= f(k)where f(k)= F (k, 1) CHAPTER 7CHAPTER 7Economic Growth IEconomic Growth Islide 13The production functionThe production functionOutput per worker, yCapital per worker, kf(k)Note: this production function exhibits diminishing MPK. Note: this production function exhibits diminishing MPK. 1MPK=f(
11、k +1)f(k)Please note, variables on the axes are not the same as in the graph from CH. 3. Here variables are in per-capita termsCHAPTER 7CHAPTER 7Economic Growth IEconomic Growth Islide 14The national income identityThe national income identity?Y= C+ I(remember, no G )? In “per worker” terms: y= c+ i
12、where c= C/Land i= I/L6CHAPTER 7CHAPTER 7Economic Growth IEconomic Growth Islide 15The consumption functionThe consumption function?s= the saving rate (0s1), the fraction of income that is saved (sis an exogenous parameter)Note: Note: s sis the only lowercase variable is the only lowercase variable
13、that is not equal to that is not equal to its uppercase version divided by its uppercase version divided by L L? Consumption function: c= (1s)y (per worker)CHAPTER 7CHAPTER 7Economic Growth IEconomic Growth Islide 16Back to national income identityBack to national income identity? National income id
14、entity is y= c+ iSubstituting for cits function,y= (1s)y+ iRearranging:i = syi.e., investment equal saving (as in Chapter 3).Recalling that y=f(k), i= sf(k)CHAPTER 7CHAPTER 7Economic Growth IEconomic Growth Islide 17Output, consumption, and investmentOutput, consumption, and investmentOutput per wor
15、ker, yCapital per worker, kf(k)sf(k)k1y1i1c17CHAPTER 7CHAPTER 7Economic Growth IEconomic Growth Islide 18Capital accumulationCapital accumulation? Remember the definition of investment?“spending on new plants, equipment, etc. from firms ”That is, investment increases the capital stock.Or,i = + kCHAP
16、TER 7CHAPTER 7Economic Growth IEconomic Growth Islide 19Capital accumulation, cont.Capital accumulation, cont.? However, to be realistic, the existing capital stock is also subject to depreciation, that is the loss of value over time, due to simple wearing out, obsolescence, etc. Example. Think of a computer as a piece of capital. Cou
