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Lecture 9

# ECON 402 Lecture 9: Chapter 8.2Premium

2 pages47 viewsSpring 2019

Department
Economics
Course Code
ECON 402
Professor
Maciej Dudek
Lecture
9

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Chapter 8 Continue
A numerical Example:
Production function
= =  = 1/2 1/2
( , )
Y F K L K L K L
Per-worker production function
Y/L = K^1/2*L^1/2/ L = (K/L)^1/2
And we can substitute y = Y/L and k = K/L
y = f(k) = k^1/2
Prediction:
Solow model predicts with higher rates of saving will have higher level of capital and
income per-worker in long run.
However, this may not match with real work condition.
The golden Rule:
Different values of s lead to different states and we need to find out the best state.
The best steady state per person given:
c* = (1s) f(k*).
With increase in s
1. Higher k* and y* and raises c*
2. Reduces consumptions share of income (1s),
and lowers c*.
The golden Rule:
Lets define
k*gold = the steady state of k that maximizes consumption.
c* = y* i*
= f (k*) i*
= f (k*) δk*
The transition to the Golden Rule State: