Advanced Macroeconomics an der Copenhagen Business School | Karteikarten & Zusammenfassungen

Lernmaterialien für Advanced Macroeconomics an der Copenhagen Business School

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What are limitations to the Solow model?

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lack of microfoundations (especially the savings decision - "people are told what to do")

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What are the assumptions in the Solow model?

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  • constant returns to scale in K & L
  • f(k) is concave - bow-shaped in the argument k
  • effective labour is AL
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What is the definition of a balanced growth path?

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It occurs when all variables of the model are growing at a constant rate.

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What is the steady state in Solow?

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constant K/Y even though there is growth in advanced economies

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What are the parameters in the optimisation problem in Solow?

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  1. Investment
  2. Consumption
  3. Saving
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What is the Golden rule? (Solow)

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  • the optimal savings rate to maximise the steady state consumption per capita
  • set f'(k) = g + delta + n (slope of capital widening line)


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What are the key characteristics of the Ramsey model?

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  • continuous time
  • no overlapping generations (more precisely, no new, disconnected generations, no immigrants)
  • maximise the utility of a representative individual in a dynasty at t = 0
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What are the key characteristics in the OLG model?

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  • discrete time t = 0,1,2,... (Solow is continuous)
  • two overlapping generations (young people work, old people don't)
  • worker in first period, capitalist in second
  • time-separable (utility of today is independent of tomorrow)
  • constant returns in capital and labour
  • generations are bound together by gains from exchange
  • people like to smooth consumption
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How does capital accumulation work in the Ramsey model?

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Yt - Ct - deltaKt

(depreciation occurs instantaneously at delta)


  • capital K is the resources constraint (you've got to accept k0, which is different in Germany than it is in China)
  • make sure that capital does not grow faster than marginal utility at time t (otherwise the optimisation would not have worked)
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What is the Keynes-Ramsey Rule?

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  • the rate of increase in consumption depends (ceteris paribus), on the elasticity of inter-temporal substitution - how readily a household is willing to substitute consumption tomorrow for consumption today


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What are the dynamics in Ramsey?

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  • c.t = 0 (f'(k) = d + delta + phita)
  • law of motion for c: when c.t > 0, k goes down and vice versa
  • law of motion for k.t = 0: f(kt) - ct - (n+delta)Kt
  • choose the right path that leads you to the steady state
  • choose consumption in such a way that it leads you to the optimal point
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TESTE DEIN WISSEN

What is included in the savings rate?

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TESTE DEIN WISSEN
  • savings from households, firms and maybe government (25% in Germany, 40% in China, 20% in USA)
  • increase in s increase GDP per capita permanently


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Q:

What are limitations to the Solow model?

A:

lack of microfoundations (especially the savings decision - "people are told what to do")

Q:

What are the assumptions in the Solow model?

A:
  • constant returns to scale in K & L
  • f(k) is concave - bow-shaped in the argument k
  • effective labour is AL
Q:

What is the definition of a balanced growth path?

A:

It occurs when all variables of the model are growing at a constant rate.

Q:

What is the steady state in Solow?

A:

constant K/Y even though there is growth in advanced economies

Q:

What are the parameters in the optimisation problem in Solow?

A:
  1. Investment
  2. Consumption
  3. Saving
Mehr Karteikarten anzeigen
Q:

What is the Golden rule? (Solow)

A:
  • the optimal savings rate to maximise the steady state consumption per capita
  • set f'(k) = g + delta + n (slope of capital widening line)


Q:

What are the key characteristics of the Ramsey model?

A:
  • continuous time
  • no overlapping generations (more precisely, no new, disconnected generations, no immigrants)
  • maximise the utility of a representative individual in a dynasty at t = 0
Q:

What are the key characteristics in the OLG model?

A:
  • discrete time t = 0,1,2,... (Solow is continuous)
  • two overlapping generations (young people work, old people don't)
  • worker in first period, capitalist in second
  • time-separable (utility of today is independent of tomorrow)
  • constant returns in capital and labour
  • generations are bound together by gains from exchange
  • people like to smooth consumption
Q:

How does capital accumulation work in the Ramsey model?

A:

Yt - Ct - deltaKt

(depreciation occurs instantaneously at delta)


  • capital K is the resources constraint (you've got to accept k0, which is different in Germany than it is in China)
  • make sure that capital does not grow faster than marginal utility at time t (otherwise the optimisation would not have worked)
Q:

What is the Keynes-Ramsey Rule?

A:
  • the rate of increase in consumption depends (ceteris paribus), on the elasticity of inter-temporal substitution - how readily a household is willing to substitute consumption tomorrow for consumption today


Q:

What are the dynamics in Ramsey?

A:
  • c.t = 0 (f'(k) = d + delta + phita)
  • law of motion for c: when c.t > 0, k goes down and vice versa
  • law of motion for k.t = 0: f(kt) - ct - (n+delta)Kt
  • choose the right path that leads you to the steady state
  • choose consumption in such a way that it leads you to the optimal point
Q:

What is included in the savings rate?

A:
  • savings from households, firms and maybe government (25% in Germany, 40% in China, 20% in USA)
  • increase in s increase GDP per capita permanently


Advanced Macroeconomics

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