# Dev 2 - Growth and Development I

• Created by: erised
• Created on: 04-04-18 12:25
What is the Solow growth model equation? Y(t)=?
Y(t) = F( K(t), A(t)L(T) )
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What is y=F(k, 1) = f(k)? And explain how to get to this formula.
Output per unit of effective labour depends on the quantity of capital per unit of effective labor. Demonstrate CRS then set c=1/AL
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What does The Solow Model assume about f'(k)?
f'(k) > 0. MPK declines if capital per unit of effective labour rises.
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What does The Solow Model assume about f ''(k)?
If f''(k) = infinity. k tends to 0. MPK increases when the capital stock declines.
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How do L and A grow?
L(t) = L(0)e^nt. A(t) = A(o)g^gt. At an exponential constant rate.
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How does capital grow?
k(t) = sf(k(t)) - [n+g+delta]k(t). Change in capital stock is the difference in the investment per unit of effective worker and the break even investment.
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What are the limits of the model?
Exogenous saving (saving rate could be negative in low incomes), exogenous population (more kids - opportunity cost & quantity quality trade off), exogenous tech change.
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Explain unconditional convergence
All countries converge to the same steady state of per income capita with A, s, n and delta all being the same. Initial level of capital is not taken into account
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Explain conditional convergence
Countries converge to their own steady state which can differ from another countries. Info is free flowing so A is the same but all other parameters can differ.
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In the theory of conditional convergence do poor countries grow faster?
Taking the initial level of per capita income into account no. Poor countries converge to a lower steady state level and at a slower rate.
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## Other cards in this set

### Card 2

#### Front

Output per unit of effective labour depends on the quantity of capital per unit of effective labor. Demonstrate CRS then set c=1/AL

#### Back

What is y=F(k, 1) = f(k)? And explain how to get to this formula.

### Card 3

#### Front

f'(k) > 0. MPK declines if capital per unit of effective labour rises.

### Card 4

#### Front

If f''(k) = infinity. k tends to 0. MPK increases when the capital stock declines.

### Card 5

#### Front

L(t) = L(0)e^nt. A(t) = A(o)g^gt. At an exponential constant rate.

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