The Solow Growth Modelpart two Economics 索洛增长模型第二部分经济学.pptVIP

The Solow Growth Model (Part Two) The golden rule level of capital, maximizing consumption per worker. Model Background As mentioned in part I, the Solow growth model allows us a dynamic view of how savings affects the economy over time. We also learned about the steady state level of capital. Now, we assume policy makers can set the savings rate to determine a steady state level of capital that maximizes consumption per worker. This is known as the golden rule level of capital (k*gold) Building the Model: We begin by finding the steady state consumption per worker.From the national income accounts identity, y = c + iwe get c = y – i We want steady state “c” so we substitute steady state values for both output (f(k*)) and investment which equals depreciation in steady state (δk*) giving us c*=f(k*) – δk* Building the Model: While the economy moves toward a steady state it is not necessarily the golden rule steady state. Any increase or decrease in savings would shift the sf(k) curve and would result in a steady state with a lower level of consumption. A Numerical Example Starting with the Cobb-Douglas production function from part I, (1) y=k1/2 recall that the following condition holds in steady state, (2) s/δ = k*/f(k*) assume depreciation is 10% and the policy maker chooses the savings rate and thus the economy’s steady state. Equation (2) becomes, s/.1 = k*/√k*Squaring both sides yields, k* = 100s2 With this we can compute steady state capital for any savings rate. A Numerical Example Using the functions from the previous slide and solving for a range of savings rates … We can see that at s=.5 we get c*=2.5 so at savings rate of .5 consumption per worker is maximized. Also note that at that level MPK–δ=0 and k*=25. A Numerical Example Another way to identify the golden rule steady state is to choose the level of capital stock where MPK – δ = 0 In this example MPK = 1/(2√k) – .1 = 0so… 1 = .1(2√k) and… 5 = √kand… 25 = k* A Numerical Exa