CH11:Savings, Capital Accumulation, and Outpu

What determines output in the long run?

Capital and labor determine output; output determines savings, which drives capital accumulation.

What is the production function in per-worker terms?

Y/N=f(K/N)

Why is investment important in the long run?

Investment increases the capital stock, which increases output

How does depreciation affect capital stock?

A fixed % (δ) of capital stock is lost annually, reducing its productive value

What happens if saving > depreciation?

Capital per worker grows, leading to higher output per worker

What is the steady state in the Solow Model?

When sf(K/N) = δ(K/N) , and capital/output per worker stop growing.

What is the effect of a higher saving rate?

Temporarily higher growth until a new higher steady state is reached

What is the Golden Rule level of capital?

The level of capital that maximizes consumption per worker in steady state

Does a higher saving rate affect long-run growth?

No, it increases the level of output but not the growth rate without tech progress

What is steady-state capital per worker when using Cobb-Douglas?

(K/N)*=(s/δ)²

What happens to consumption at very low or very high savings rates?

It is low at both extremes—optimal somewhere between 0% and 100%

How does human capital affect output?

It increases steady-state output, similar to physical capital

Can skills depreciate?

Yes, similar to physical capital, without continued investment

What do endogenous growth models suggest?

Long-run growth can result from factors like saving rate and education spending.