1. 9. Fundamental Concepts of Macroeconomics
Objectives and Methods of Macroeconomics
Economic Growth
National Accounting
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2. 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
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3. 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
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4. 9.2.3.1 The Macroeconomic Production Function
Fig. 9.1 Total product curves of capital (sector a) and labour (sector b)
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5. Diminishing Marginal Products
Fig. 9.2 Diminishing marginal products of capital (sector a) and labour (sector b)
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6. 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
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7. 9.2.3.3 Growth of Production Per Capita
Fig. 9.3 Per capita production function
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8. Economics for Environmental Studies
Steady State
Fig. 9.4 Steady state in the Solow model with constant population
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9. Transition of the Capital-Labour Ratio
Fig. 9.6 Transition of k towards the steady state in the Solow model with constant population
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10. Transition of Production Per Capita
Fig. 9.7 Transition of q towards the steady state in the Solow model with constant population
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Population Growth
Fig. 9.8 Steady state in the Solow model with growing population
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12. 9.2.3.5 Permanent Changes of the Saving Rate
Fig. 9.9 Steady states for different saving rates in the Solow model
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13. 9.2.3.6 Permanent Changes of the Rate of Population Growth
Fig Steady states for different rates of population growth in the Solow model
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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
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15. 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
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16. 9.2.4 Growth in a Decentralised Economy: The Ramsey Model
Endogenous Saving
Markets
Consumers
Firms
Dynamic General Equilibrium (DGE)
Steady State
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17. Economics for Environmental Studies
Consumers
Fig Periodical utility function of the representative consumer
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18. Economics for Environmental Studies
Periodical Saving
Fig Individual saving in period t as a function of the future real interest rate
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19. Economics for Environmental Studies
Firms
Fig Firm individual periodical demand functions for capital (sector a) and labour (sector b) inputs
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20. 9.2.4.5 Dynamic General Equilibrium
Fig Labour market equilibrium in period t
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21. Periodical Capital Market Equilibrium
Fig Capital market equilibrium in period t
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22. Economics for Environmental Studies
Steady State
Fig Steady state in the Ramsey model with discounting
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23. 9.2.5 Socially Optimal Growth
Social Optimality
The Golden Rule of Capital Accumulation
Normative Individualism
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24. 9.2.5.2 The Golden Rule of Capital Accumulation
Fig Golden-Rule steady state
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25. Economics for Environmental Studies
Ramsey and Golden Rule
Fig Ramsey steady state versus Golden-Rule steady state
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26. 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
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27. 9.2.6.1 Exogenous ‘LA‘ Technological Change in the Solow Model
Fig Steady state in the Solow model with exogenous labour-augmenting technological progress
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28. 9.2.6.2 Exogenous ‘LA‘ Technological Change in the Ramsey Model
Fig Steady state in the Ramsey model with exogenous labour-augmenting technological progress
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29. Economics for Environmental Studies
9.3 National Accounting
Purposes of National Accounting
Measuring National Product
Measuring National Wealth
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30. 9.3.3 Measuring National Wealth
Fig Components of national wealth as computed in the SNA
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