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

2 of 10

What does The Solow Model assume about f'(k)?

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

3 of 10

What does The Solow Model assume about f ''(k)?

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

4 of 10

How do L and A grow?

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

5 of 10

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.

6 of 10

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.

7 of 10

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

8 of 10

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.

9 of 10

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.

10 of 10

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.

Back

Card 4

Front

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

Back

Card 5

Front

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

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