Topics likely to be covered on the midterm
- What is (micro)economics?
- What is dynamics?
- The Solow model of growth:
- variables and equations
- assumptions on parameters and their rationales (e.g., why is
s constant? F exhibits constant returns to scale.)
- idea of steady state in per capita
- characteristic equation: k' = sf(k) - (n + d)k
- phase diagram (axes have k' vs. k; graphs of sf(k) and
(n + d)k
- comparative statics of steady state (what happens if s, n,
or d changes?)
- Solow's "Golden Rule"
- What is the optimization problem? Choose s to maximize c
in the steady state.
- Why is this the "natural" optimization problem in this model?
(s is the only controllable parameter, while c is the
variable that corresponds most closely to individual welfare.)
- Technological progress in the Solow model
- Only way to achieve steady-state per-capita growth; manifests as
growth in total factor productivity (TFP)
- "Neutral" technological progress: Harrod-neutral
("labor-enhancing"), Hicks-neutral ("TFP-enhancing"),
Solow-neutral ("capital enhancing")
- Solow-style model with technological progress: easily solved if
progress is Harrod-neutral.
- growth accounting: contribution to GDP growth by growth in
capital and labor, and productivity improvement (the "Solow
residual")
- The convergence hypothesis
- Why does the Solow model suggest convergence may occur?
- Interpretation of y' vs. y diagram
- Interpreting differential equations
- Bellman's Principle of Optimality (equivalence of solution of
dynamic program to recursive solutions to value function
equations)
- Exhaustible resources
- Pure exhaustible vs. renewable ("self-renewing") resources
existing as stocks (oil vs. tuna fish) vs. "renewable"
resources existing as flows (solar power)
- Interpretation of various assumptions on natural rate of
increase
- Own rate of return