ECON 202 Lecture 6: Chap6-Spring2016

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Chapter 6: the sources of growth and the solow model. Sources of economic growth: the aggregate production function with constant returns scale: 0. 7 where k=capital stock, l=labor, a=technology, total factor productivity (tfp: tfp (also known as the solow residual) at time t, can be calculated as: 0. 7: the time subscript (t) allows us to be more specific about the timing of a variable. The growth accounting equation is the aggregate production function in terms of the growth rate of the variables. L growth rate of output growth rate of tfp growth rate of capital growth rate of labor. In the growth accounting equation, growth in output comes from: productivity growth = a/a, capital growth = 0. 3 k/k, labor growth = 0. 7 l/l. Notice that the growth accounting equation retains the property of diminishing marginal product of capital and labor: If capital grows by 1%, then output grows by only 0. 3 1% = 0. 3%

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