The Neoclassical Growth Models Presented By :- Sanjukta Kar 1

Introduction I will discuss the Solow Swan model which points out the effects of saving, technological advance and population expansion. Next I go over the Ramsey, Cass and Koopmans's closed economy model with intertemporally utility maximizing infinitely lived generations. Lastly, I discuss a version of the overlapping generations model. 2

The Solow Swan Model of Fixed Savings Solow and Swan (1956) incorporated a supply side to the Keynesian aggregate demand framework. Lets look at the model- The new element which is of interest is technological progress. Technological shocks are classified as Hicks Neutral with production function as— where A is the exogenous productivity parameter, Harrod Neutral with production function as— where E is the labor augmenting technological shift parameter and EL is the supply of efficiency units of labor. 3

The demand side-- The economy is closed and there is no government. Private savings S is a fixed fraction s of current income Y. So we can write- 1. We have a closed economy. So domestic savings= domestic investment. The capital accumulation equation is given by – 2. Where delta is the rate of depreciation. The level of Harrod Neutral productivity E grows at the rate 3a. 4

5

6

7

8

9

10 The Ramsey- Cass - Koopmans Growth Model with Infinitely Lived Representative Dynasty

11 Dividing by Lt we get

12

Dynamics of the Model 13

Implications Effect of a decline of the patience factor beta 14

15

Effect of a rise in the population growth rate 16

17

An Overlapping Generations Growth Model 18

19

Dynamics 20

21

Comments Questions? Suggestions? 22