9. Fundamental Concepts of Macroeconomics Objectives and Methods of Macroeconomics Economic Growth National Accounting A. Endres & V. Radke Economics for Environmental Studies

Economics for Environmental Studies 9.2 Economic Growth Definitions of Economic Growth Economic Growth in Figures Growth Theory: The Solow Model Growth in a Decentralised Economy: The Ramsey Model Socially Optimal Growth Extension: Technological Change A. Endres & V. Radke Economics for Environmental Studies

9.2.3 Growth Theory: The Solow Model The Macroeconomic Production Function Growth of Total Production Growth of Production per Capita Steady State Permanent Changes of the Saving Rate Permanent Changes of the Rate of Population Growth Interim Conclusion A. Endres & V. Radke Economics for Environmental Studies

9.2.3.1 The Macroeconomic Production Function Fig. 9.1 Total product curves of capital (sector a) and labour (sector b) A. Endres & V. Radke Economics for Environmental Studies

Diminishing Marginal Products Fig. 9.2 Diminishing marginal products of capital (sector a) and labour (sector b) A. Endres & V. Radke Economics for Environmental Studies

9.2.3.2 Growth of Total Production Q=F(K,N) Positive marginal returns Growth of Q is possible by Population growth (constant exogenous rate n): Nt+1=(1+n)Nt Capital accumulation (via net saving): Kt+1-Kt=F(Kt,Nt)-Kt A. Endres & V. Radke Economics for Environmental Studies

9.2.3.3 Growth of Production Per Capita Fig. 9.3 Per capita production function A. Endres & V. Radke Economics for Environmental Studies

Economics for Environmental Studies 9.2.3.4 Steady State Fig. 9.4 Steady state in the Solow model with constant population A. Endres & V. Radke Economics for Environmental Studies

Transition of the Capital-Labour Ratio Fig. 9.6 Transition of k towards the steady state in the Solow model with constant population A. Endres & V. Radke Economics for Environmental Studies

Transition of Production Per Capita Fig. 9.7 Transition of q towards the steady state in the Solow model with constant population A. Endres & V. Radke Economics for Environmental Studies

Economics for Environmental Studies Population Growth Fig. 9.8 Steady state in the Solow model with growing population A. Endres & V. Radke Economics for Environmental Studies

9.2.3.5 Permanent Changes of the Saving Rate Fig. 9.9 Steady states for different saving rates in the Solow model A. Endres & V. Radke Economics for Environmental Studies

9.2.3.6 Permanent Changes of the Rate of Population Growth Fig. 9.10 Steady states for different rates of population growth in the Solow model A. Endres & V. Radke Economics for Environmental Studies

Economics for Environmental Studies 9.2.3.7 Interim Conclusion Solow model with constant population (and no technological progress): K, Q as well as k, q change during the transition towards the steady state K, Q and k, q are constant in the steady state Changing population (no technological progress): In the st. st. K, Q grow with rate n In the st. st. k, q are constant A. Endres & V. Radke Economics for Environmental Studies

Change of the Saving Rate A once-and-for-all rise of  rises the steady-state levels of K, Q and k, q, but not their steady-state gowth rates Capital accumulation cannot generate long-run growth of q because of diminishing marginal returns of capital A. Endres & V. Radke Economics for Environmental Studies

9.2.4 Growth in a Decentralised Economy: The Ramsey Model Endogenous Saving Markets Consumers Firms Dynamic General Equilibrium (DGE) Steady State A. Endres & V. Radke Economics for Environmental Studies

Economics for Environmental Studies 9.2.4.3 Consumers Fig. 9.11 Periodical utility function of the representative consumer A. Endres & V. Radke Economics for Environmental Studies

Economics for Environmental Studies Periodical Saving Fig. 9.12 Individual saving in period t as a function of the future real interest rate A. Endres & V. Radke Economics for Environmental Studies

Economics for Environmental Studies 9.2.4.4 Firms Fig. 9.13 Firm individual periodical demand functions for capital (sector a) and labour (sector b) inputs A. Endres & V. Radke Economics for Environmental Studies

9.2.4.5 Dynamic General Equilibrium Fig. 9.14 Labour market equilibrium in period t A. Endres & V. Radke Economics for Environmental Studies

Periodical Capital Market Equilibrium Fig. 9.15 Capital market equilibrium in period t A. Endres & V. Radke Economics for Environmental Studies

Economics for Environmental Studies 9.2.4.6 Steady State Fig. 9.16 Steady state in the Ramsey model with discounting A. Endres & V. Radke Economics for Environmental Studies

9.2.5 Socially Optimal Growth Social Optimality The Golden Rule of Capital Accumulation Normative Individualism A. Endres & V. Radke Economics for Environmental Studies

9.2.5.2 The Golden Rule of Capital Accumulation Fig. 9.17 Golden-Rule steady state A. Endres & V. Radke Economics for Environmental Studies

Economics for Environmental Studies Ramsey and Golden Rule Fig. 9.18 Ramsey steady state versus Golden-Rule steady state A. Endres & V. Radke Economics for Environmental Studies

9.2.6 Extension: Technological Change Exogenous Labour-Augmenting Technological Change in the Solow Model Exogenous Labour-Augmenting Technological Change in the Ramsey Model Endogenous Technological Change: The Romer Model A. Endres & V. Radke Economics for Environmental Studies

9.2.6.1 Exogenous ‘LA‘ Technological Change in the Solow Model Fig. 9.19 Steady state in the Solow model with exogenous labour-augmenting technological progress A. Endres & V. Radke Economics for Environmental Studies

9.2.6.2 Exogenous ‘LA‘ Technological Change in the Ramsey Model Fig. 9.20 Steady state in the Ramsey model with exogenous labour-augmenting technological progress A. Endres & V. Radke Economics for Environmental Studies

Economics for Environmental Studies 9.3 National Accounting Purposes of National Accounting Measuring National Product Measuring National Wealth A. Endres & V. Radke Economics for Environmental Studies

9.3.3 Measuring National Wealth Fig. 9.21 Components of national wealth as computed in the SNA A. Endres & V. Radke Economics for Environmental Studies