1、Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-1CHAPTER 4The Theory of Economic GrowthCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-2Questions What are the principal determinants of long-run economic growth?What equilibrium condition is useful in analyz
2、ing long-run growth?How quickly does an economy head for its steady-state growth path?Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-3Questions What effect does faster population growth have on long-run growth?What effect does a higher savings rate have on long-run growth?Copy
3、right 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-4Long-Run EconomicGrowth.is the most important aspect of how the economy performs can be accelerated by good economic policies can be retarded by bad economic policiesCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved
4、.4-5Long-Run Economic Growth Policies and initial conditions affect growth through two channelstheir impact on the level of technology multiplies the efficiency of labortheir impact on the capital intensity of the economy the stock of machines,equipment,and buildings that the average worker has at h
5、is or her disposalCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-6Technology leads to a higher efficiency of laborskills and education of the labor forceability of the labor force to handle modern machinesthe efficiency with which the economys businesses and markets function E
6、conomists are good at analyzing the consequences of better technologyhave less to say about the sources Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-7Capital Intensity There is a direct relationship between capital-intensity and productivity Two principal determinantsinvestm
7、ent effort the share of total production saved and invested in order to increase the capital stockinvestment requirements how much of new investment is used to equip new workers with the standard level of capital or to replace worn-out or obsolete capitalCopyright 2002 by The McGraw-Hill Companies,I
8、nc.All rights reserved.4-8Standard Growth Model Also called the Solow model Steady-state balanced-growth equilibriumthe capital intensity of the economy is stablethe economys capital stock and level of real GDP are growing at the same ratethe economys capital-output ratio is constantCopyright 2002 b
9、y The McGraw-Hill Companies,Inc.All rights reserved.4-9Standard Growth Model First component is the production functiontells us how the productive resources of the economy can be used to produce and determine the level of outputEF(K/L),(Y/L)Cobb-Douglas production function-1(E)(K/L)(Y/L)Copyright 20
10、02 by The McGraw-Hill Companies,Inc.All rights reserved.4-10Standard Growth Model Parameters of the modelE is the efficiency of labor a higher level of E means that more output per worker can be produced for each possible value of the capital stock per worker measures how fast diminishing marginal r
11、eturns to investment set in-1(E)(K/L)(Y/L)Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-11Standard Growth Model 01a level of near zero means that the extra amount of output made possible by each additional unit of capital declines very quickly as the capital stock increases-1
12、(E)(K/L)(Y/L)Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-12Figure 4.1-The Cobb-Douglas Production Function for Parameter Near ZeroCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-13Standard Growth Model 0s/(n+g+)the capital-output ratio will be shrinkin
13、g If ts/(n+g+)the capital-output ratio will be growingCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-42Figure 4.12-Growth of the Capital-Output Ratio as a Function of the Level of the Capital-Output RatioCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-43S
14、teady-State Growth Equilibrium If t=s/(n+g+)the growth rate of the capital-output ratio will be zerothe capital-output ratio will be stable(neither shrinking nor growing)*=s/(n+g+)is the equilibrium level of the capital-output ratio)g(ns/)(1)g(ttCopyright 2002 by The McGraw-Hill Companies,Inc.All ri
15、ghts reserved.4-44Figure 4.13-Convergence of the Capital-Output Ratio to Its Steady-State ValueCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-45Steady-State Growth Equilibrium When the capital-output ratio(t)is at its steady state value(*)output per worker g(yt)is growing at p
16、roportional rate gcapital stock per worker is growing at the same proportional rate gthe economy wide capital stock is growing at the proportional rate n+greal GDP is also growing at proportional rate n+gCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-46Steady-State Growth Path
17、 When the capital-output ratio is at its equilibrium value(*),the economy is on its steady-state growth path From Chapter 3,we know that as long as we are on the steady-state growth pathttttE*Egns)/L(Y11Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-47Figure 4.14-Calculating S
18、teady-StateOutput per Worker along theSteady-State Growth PathCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-48Steady-State Growth Path An increase in the capital-output ratio increases the capital stock directly and indirectlyextra output generated by new capital is source fo
19、r additional saving and investment This leads to a multiplier effect of anything that raises*Copyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-49Figure 4.16-The Growth Multiplier:The Effect of Increasing the Capital-Output Ratio on the Steady-State Output per WorkerCopyright 2002
20、 by The McGraw-Hill Companies,Inc.All rights reserved.4-50Steady-State Growth Path Let the growth multiplier()equal/1-Output per worker along the steady-state growth path will betttE*LYCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-51Steady-State Growth Path To calculate outpu
21、t per worker when the economy is on its steady-state growth pathcalculate the steady-state capital-output ratio*=s/(n+g+)amplify the steady-state capital-output ratio(*)by the growth multiplier=/(1-)multiply by the current value of the efficiency of labor(Et)Copyright 2002 by The McGraw-Hill Compani
22、es,Inc.All rights reserved.4-52Figure 4.15-Output per Worker on the Steady-State Growth PathCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-53Reaching the Steady-State Growth Path How long does it take for the capital-output ratio to adjust to its steady-state value(*)?an econo
23、my that is not on its steady-state growth path will close a fraction(1-)(n+g+)of the gap between the steady state value(*)and its current value(t)in a yearCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-54Figure 4.17-West German Convergence to Its Steady-State Growth PathCopyri
24、ght 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-55Labor Force Growth The faster the growth of the labor force,the lower will be the economys steady-state capital-output ratiothe larger the share of current investment that must go to equip new workers with the capital they need A sudd
25、en,permanent increase in labor force growth will lower output per worker on the steady-state growth pathCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-56Figure 4.18-Labor Force Growth andGDP-per-Worker LevelsCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4
26、-57Figure 4.19-Effects of a Rise in Population Growth on the Economys Growth PathCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-58Increases in the Depreciation Rate The higher the depreciation rate,the lower will be the economys steady-state capital-output ratioexisting capita
27、l stock wears out and must be replaced more quickly An increase in the depreciation rate will lower output per worker on the steady-state growth pathCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-59Productivity Growth The faster the growth rate of productivity,the lower will b
28、e the economys steady-state capital-output ratiopast investment will be small relative to current output An increase in productivity growth will raise output per worker along the steady-state growth pathCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-60Increases in the Saving R
29、ate The higher the share of real GDP devoted to saving and investment,the higher will be the economys steady-state capital-output ratiomore investment increases the amount of new capital A higher saving rate also increases output per worker along the steady-state growth pathCopyright 2002 by The McG
30、raw-Hill Companies,Inc.All rights reserved.4-61Figure 4.20-National Investment Shares and GDP-per-Worker LevelsCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-62Chapter Summary One principal force driving long-run growth in output per worker is the set of improvements in the ef
31、ficiency of labor springing from technological progressCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-63Chapter Summary A second principal force driving long-run growth in output per worker are the increases in the capital stock which the average worker has at his or her dispo
32、sal and which further multiplies productivityCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-64Chapter Summary An economy undergoing long-run growth converges toward and settles onto an equilibrium steady-state growth path,in which the economys capital-output ratio is constantCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.4-65Chapter Summary The steady-state level of the capital-output ratio is equal to the economys saving rate divided by the sum of its labor force growth rate,labor efficiency growth rate,and depreciation rate
