lectures in macroeconomics- charles w. upton the role of capital real income per worker = a t (k t...
Post on 20-Dec-2015
213 views
TRANSCRIPT
![Page 1: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/1.jpg)
Lectures in Macroeconomics- Charles W. Upton
The Role of Capital
Real Income per worker = At(Kt/Lt)1/3
![Page 2: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/2.jpg)
The Role of Capital
The Basic Equation
• A good equation for describing the National Income at time t is:
Real Income = AtKt1/3Lt
2/3
![Page 3: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/3.jpg)
The Role of Capital
The Basic Equation
• A good equation for describing the National Income at time t is:
Real Income = AtKt1/3Lt
2/3
Real Income per worker = (AtKt
1/3Lt2/3)/Lt
![Page 4: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/4.jpg)
The Role of Capital
The Basic Equation
• A good equation for describing the National Income at time t is:
Real Income = AtKt1/3Lt
2/3
Real Income per worker = (AtKt1/3Lt
2/3)/Lt
Real Income per worker = At Kt
1/3 Lt2/3 Lt
-1
![Page 5: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/5.jpg)
The Role of Capital
The Basic Equation
• A good equation for describing the National Income at time t is:
Real Income = AtKt1/3Lt
2/3
Real Income per worker = (AtKt1/3Lt
2/3)/Lt
Real Income per worker = At Kt1/3 Lt
2/3 Lt-1
Real Income per worker = At(Kt/Lt)1/3
![Page 6: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/6.jpg)
The Role of Capital
The Basic Equation
• A good equation for describing the National Income at time t is:
Real Income per worker = At(Kt/Lt)1/3
• That is, the amount of capital per worker matters
![Page 7: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/7.jpg)
The Role of Capital
Europe after World War II
• Europe was devastated after World War II
![Page 8: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/8.jpg)
The Role of Capital
Europe after World War II
• Europe was devastated after World War II
• In our terms,
At(Kt/Lt)1/3 for Europe < At(Kt/Lt)1/3 for US
![Page 9: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/9.jpg)
The Role of Capital
Europe after World War II
• Europe was devastated after World War II
• In our terms,
At(Kt/Lt)1/3 for Europe < At(Kt/Lt)1/3
for US• Europe’s devastation was due to the lower
capital stock.
![Page 10: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/10.jpg)
The Role of Capital
Europe Caught Up
• Europe Caught Up– Marshall Plan– American Private Investment– A lot of hard work on the part of Europeans
![Page 11: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/11.jpg)
The Role of Capital
Rebuilding Capital
Real Income per worker = A(K/L)1/3
![Page 12: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/12.jpg)
The Role of Capital
Rebuilding Capital
Real Income per worker = A(K/L)1/3
• Suppose a nation is devastated by a war, resulting in a sharp decline in capital per worker.– Income per worker will decline.– It can be restored to its old level by rebuilding
the capital stock.
![Page 13: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/13.jpg)
The Role of Capital
Miller’s Pizzeria
• Can make many points through this simple example.
• Will return to the Pizzeria throughout the course.
![Page 14: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/14.jpg)
The Role of Capital
An Analogy: Miller’s Pizzeria
Real Income per worker = A(K/L)1/3 • You are the owner of Miller’s Pizzeria.
– It burns; output is down– When you rebuild, you restore output.
![Page 15: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/15.jpg)
The Role of Capital
The Fallacy
Real Income per worker = A(K/L)1/3
• I decide to go into the pizza business.
![Page 16: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/16.jpg)
The Role of Capital
The Fallacy
Real Income per worker = A(K/L)1/3 • I decide to go into the pizza business.
A = 0
![Page 17: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/17.jpg)
The Role of Capital
A Second Fallacy
Real Income per worker = A(K/L)1/3 • My pizzeria is very successful.
– To be even more successful, I buy even more machines.
![Page 18: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/18.jpg)
The Role of Capital
A Second Fallacy
Real Income per worker = A(K/L)1/3
• My pizzeria is very successful.– To be even more successful, I buy even more
machines.– Added productivity occurs at a decreasing rate.
– In terms of the equation, with A(K/L)1/3, doubling capital increases output by 25%.
![Page 19: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/19.jpg)
The Role of Capital
Applying to Nations
Real Income per worker = A(K/L)1/3
• The same fallacies applies to nations.– Output depends on both capital and technology.– Capital alone is not enough.
![Page 20: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/20.jpg)
The Role of Capital
A New Marshall Plan?
• Some suggest a new Marshall Plan for the really poor nations of the world.
![Page 21: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/21.jpg)
The Role of Capital
A New Marshall Plan?
• Some suggest a new Marshall Plan for the really poor nations of the world.– We solved got Europe on its feet after WWII
with the first Marshall Plan.– Why not do the same for poor nations?
![Page 22: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/22.jpg)
The Role of Capital
A New Marshall Plan?
• Some suggest a new Marshall Plan for the really poor nations of the world.
• The two fallacies catch up with you.
![Page 23: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/23.jpg)
The Role of Capital
A New Marshall Plan?
• Some suggest a new Marshall Plan for the really poor nations of the world.
• The two fallacies catch up with you.
Real Income per worker = A(K/L)1/3
– Capital will not do the job if A is small
![Page 24: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/24.jpg)
The Role of Capital
A New Marshall Plan?
• Some suggest a new Marshall Plan for the really poor nations of the world.
• The two fallacies catch up with you.
Real Income per worker = A(K/L)1/3
– Capital will not do the job if A is small– You cannot overcome a small A with capital
investment. There are diminishing returns
![Page 25: Lectures in Macroeconomics- Charles W. Upton The Role of Capital Real Income per worker = A t (K t /L t ) 1/3](https://reader030.vdocument.in/reader030/viewer/2022032800/56649d425503460f94a1e5bc/html5/thumbnails/25.jpg)
The Role of Capital
End
©2003 Charles W. Upton. All rights reserved