ECN 101 Chapter Notes - Chapter 8: Production Function
Document Summary
Approaching the steady state: a numerical example, assume production function: y = k1/2l1/2, to derive per-worker production function f(k), divide both sides by labor force (l, how saving affects growth. If the saving rate is high, economy will have a large capital stock and a high level of output in the steady state. If saving rate is low, economy will have a small capital stock and a low level of output in the steady state: long run consequences of a reduced saving rate are a lower capital stock and lower. Golden: when comparing steady states, we must keep in mind that higher levels of capital affect both output and depreciation. If capital stock is below the golden rule level, an increase in capital stock raises output more than depreciation so consumption rises. In this case, production function is steeper than the ( k*) line, so gap between the 2 curves (consumption) grows as k* rises.
