ECON C175 Chapter Notes - Chapter (Week 3): Thomas Piketty, Capital Intensity, Wealth Concentration
Week 3: Capital to the Resue?
Dornbusch and Fisher: Macroeconomics – Growth Theory
• Comparing countries with the same technology and savings rate, the one that has a higher population
growth will have the lower per capita income
• Drivers of economic growth: capital intensity and growth in efficiency of labor (technological,
organizational progress)
o Capital itesity/auulatio: the eooy’s apital-output ratio
▪ Increase in capital intensity = makes the economy richer
• To maintain the K-L ratio constant, savings and investments have to be sufficient to make up for the
reduction in capital per head that arises from population growth and depreciation
o Convergence to a steady-state K-L ratio
• In the steady state, capital, output, and labor all grow at the same rate, which is equal to the rate of
population growth (assuming not influenced by the saving rate and no technological progress)
• An increase in the savings rate leads to a SR increase in the growth rate of output and a LR level of
capital and output per head (NOT growth rate of output per head)
o Output growth rises, but then falls back to the growth rate of the population
Piketty and Saez: Inequality in the Long Run
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