Terms in this set (6)
Harrod-Domar growth model
GDP growth is proportional to share of investment. Doesn't take into account borrowing.
Different savings rates: If savings is so important, how do you incentivize savings within your society? People have different marginal propensity to consume... Who has more? Those with more income. Need to provide incentive for these people to save.
Two sector: Two important assumptions-- (1) There is surplus labor in that marginal product of labor is equal to zero and (2) no unemployment.
Growth is dependent on capital. So investment is important. To get investment, we must save.
components of economic growth
capital accumulation, population and labor force growth, technological progress
allows for substitution between capital and labor, assuming there are diminishing marginal returns. output per worker is a function that depends on the amount of capital per worker. above and below k
k in the economy is either growing or shrinking toward the equilibrium point. if you increase savings, the entire curve shifts up and your k
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