# 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