Principles of Macroeconomics Day 4 Solow Dr Andrew

Principles of Macroeconomics Day 4 - Solow Dr. Andrew L. H. Parkes “A Macroeconomic Understanding for use in Business” September 15, 2011 Macroeconomics, Day 4 卜安吉

Solow Growth Model n Robert Solow created the basic Growth Model n Productivity is what the model examines – Output per worker (or output person) n Productivity depends upon capital per worker n Increases in capital per worker increases productivity – Note Solow model: increase k → increase y … yet diminishing September 15, 2011 Macroeconomics, Day 4 2

Solow Growth Model n Labor is the most basic input! n Increases in population decrease output per worker (as they decrease capital per worker) n Capital has about a 25% share, whereas Labor has a 75% share of output n Technology is also an important component September 15, 2011 Macroeconomics, Day 4 3

Improvements to L-R Growth Long-run growth results from improvements in technology and human capital. We find that human capital is the most important component of productivity! September 15, 2011 Macroeconomics, Day 4 4

Human Capital Remember that Human Capital is not JUST education but ALL training, experience and on-the-job learning too! Health care while a side issue is also important as you are not usually learning while sick! September 15, 2011 Macroeconomics, Day 4 5

Savings is also a very important component of productivity (output per worker)! However, Saving more may increase the LEVEL of productivity but not the growth rate of productivity. That is to say, saving increases the standard of living but not the growth rate of the standard of living (not growing more wealthy faster). September 15, 2011 Macroeconomics, Day 4 6