Chapter 4 The Malthusian Model
How useful is the Malthusian Model?
Given what was known in 1798, the model could be judged to be successful.
Positive correlation between population growth and income
However, it is tow far to permissitic from the perspective of the 21th century.
Little correlation between population growth and income
Why is the Malthusian Model wrong?
Didn't allow for the effect of increase in the capital stock on production.
Capital reproduce itself.
Didn't account for all of the effects of economic forces on population growth.
For example, as economy develops, there are better opportunities for working
outside home. Higher wages increase the opportunity costs of raising children.
Chapter5. The Solow Model
By Robert Solow
Very simple. Yet it makes sharp prediction about the future growth.
Much more optimistic. About the prospects for long-run improvement in standard of
Aggregate production function
! " #$α%&'α
Y= output; z=TFP; L= labor; K= capital
Constant return to scale:
(! " #
, - .
$ / 0
Where K' is future capital, I is income
Exogenous population growth
, / 2
N- current population, n-net population growth rate
Wednesday, November 14, 2018