Macroeconomic Analysis 2003 Golden Rule of Saving and Capital Accumulation Lecture 3

Lecture 3

Saving rate affects level of income but not the growth rates How does a higher saving rate affect the level of output in the steady state? High saving country Low saving country Saving rate affects level of income but not the growth rates Lecture 3

How does the technological advancement affect the per capita capital and per capita output in the steady state? Advanced Technology Primitive Technology Lecture 3

Golden Rule for Saving and Capital Accumulation C-max Kg Kss Lecture 3

Golden Rule of Saving Lecture 3

A Numerical Example for the Golden Rule of Saving Lecture 3

How High Should be the Saving Rate How High Should be the Saving Rate? Saving Rate that Maximises Consumption C-max = 1.25 y = 0.5*k0.5 y=2.5 Consumption k = 25 s5 s4 s1 s2 s*=1.25 Saving rate Lecture 3

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Optimal Saving and Consumption in Two Period Model Lecture 3

A Three Period Optimal Consumption-Saving Model Lecture 3

Four Optimisation Conditions Lecture 3

Consumption and Savings in Three Periods Lecture 3

Policy Issues: Tax, Saving and Consumption What is the impact in consumption and saving in the above model If there is a 20 percent tax on interest income? If there is a 20 percent subsidy in it? What sort of tax system is better for increasing the ratio of saving? Does a higher rate of VAT promote saving or consumption? Does a higher rate of tax on labour income encourage or discourage saving? Does a higher rate of tax on pension income increase saving or consumption? Lecture 3

Which sectors are hit hard when the labour income is taxed more heavily than the capital income? Do workers in the Service sector lobby for Higher capital income tax? Lecture 3

Which Sectors are important for a higher economic growth in the Yorkshire and Humberside region? (annual growth rates) Lecture 3

Why is the Manufacturing Sector So Important for Economic Growth? Lecture 3

Lecture 3

Exercises Calculate the saving rate consistent with the golden rule Study of Relative income levels across regions in the UK Study of economic growth in Hulls and Humberside Which are the leading sectors of Economic Growth in the UK and in the Yorkshire and Humberside? Lecture 3