CAS EC 202 Lecture Notes - Lecture 9: Marginal Product, Industrial Policy, Government Budget Balance

• School: Boston University
• Department: Economics
• Course: CAS EC 202
• Professor: Martin Fiszbein

Document Summary

In the solow model of chapter 8: the production technology is held constant. Th golden rule with technological progress: to find the golden rule capital stock, express c* in terms of k*: c* = y* - i* = f(k*) - ( + n + g)k* c* is maximized when mpk = + n + g. Mpk - = n+g or equivalently, (in the golden rule steady state, the marginal product of capital net of depreciation equals the popultation growth rate plus the rate of technological progress) Growth empirics: balanced growth: solow model"s steady state exhibits balanced growth--many variables grow at the same rate, solow model predicts y/l and k/l grow at the same rate (g), so k/y should be constant. This is true in the real world: solow model predicts real wage grows at same rate as y/l, while real rental price is constant.