Kean University Importance of Capital Accumulation Paper

Description

Please include graph!
https://fred.stlouisfed.org/

Introduction
Malthus’ model of growth is very useful as it explains most of human history; it was not until the Industrial Revolution in the 19th Century that the industrial way of organizing the economy took off.
The purpose of this assignment is to put in perspective the shrinking importance of agriculture as other sectors of the economy take over as larger shares of the economy. This does not mean that the dollar value of the agricultural output is falling, but rather that it lags as manufacturing and services grow faster.
Instructions
This time we will not visit FRED, but we will dive into the Gapminder. The Gapminder is a very friendly and simple visualization tool that allows to have a snapshot of the world for many socio-economic indicators. Go to gapminder.org and then click on Resources (tab on upper right). Once you see the start-up graph, modify the vertical axis and go to Economy/Sectors/Agriculture. It will take you to the year 2019 and show you the share of agriculture in GDP around the world. It is striking the large range of values that you will see!  If you click on play you will see how all countries drift downward (smaller share of GDP for agriculture) and to the right (higher income). Use the latest available year for your analysis.

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Chapter 7
Economic Growth:
Malthus and Solow
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U.S. Per Capita Real Income Growth
Except for the Great Depression and World War II, growth in U.S. per
capita real income has not strayed far from 2% per year since 1900.
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1-2
Real Per Capita Income and the Investment Rate
Across countries, real per capita income and the investment rate are
positively correlated.
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1-3
Real Per Capita Income and the Rate of
Population Growth
Across countries, real per capita income and the population growth
rate are negatively correlated.
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1-4
Real Per Capita Income and Per Capita
Income Growth
• There is no tendency for rich countries to grow faster
than poor countries, and vice-versa.
• Rich countries are more alike in terms of rates of
growth than are poor countries.
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1-5
Figure 7.4
Growth Rate in Per Capita Income vs. Level of Per
Capita Income
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A Malthusian Model of Economic Growth
• This model predicts that a technological advance will only
increase population, with no long-run change in the standard
of living.
• Output is produced from land and labor inputs.
Y ? zF ( L, N )
• Population growth is higher the higher is per-capita
consumption.
N’
?C?
? g? ?
N
?N?
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1-7
Figure 7.5
Population Growth Depends on Consumption per
Worker in the Malthusian Model

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Equilibrium Condition
In equilibrium, consumption equals output produced.
Y ? C ? zF ( L, N )
So,
N’
? g[ zF ( L, N ) / N ]
N
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How Population Evolves in Equilibrium
• Because of constant returns to scale and Y = C,
N’
? g[ zF ( L, N ) / N ]
N
• Implies that next period’s population is given by
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1-10
Figure 7.6
Determination of the Population in the Steady State
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The Land Per-Worker Production Function
Because of constant returns to scale,
Y ? zF ( L, N )
becomes the equation below after dividing through by 1/N.
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Figure 7.7
The Per-Worker Production Function
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Equilibrium Condition in Per-Worker Form
In equilibrium y = c, hence
And so population growth is increasing in consumption per
worker, c
N’
? g (c )
N
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1-14
Figure 7.8
Determination of the Steady State in the
Malthusian Model
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An Increase in z in the Malthusian Model
• If z increases, this shifts up the per-worker production
function.
• In the long run, the population increases to the point
where per capita consumption returns to its initial level.
• There is no long-run change in living standards.
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Figure 7.9
The Effect of an Increase in z in the
Malthusian Model
l2*
l1*
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Figure 7.10
Adjustment to the Steady State in the Malthusian
Model When z Increases
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How Useful is the Malthusian Model?
• Model provides a good explanation for pre-1800
growth facts in the world.
• Malthus did not predict the effects of technological
advances on fertility.
• Malthus did not incorporate the role of capital
accumulation in growth.
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Explanation & Answer:
500 words

Tags:
economic growth

intermediate microeconomic

Capital accumulation

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