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Lecture 31 Macroeconomic Analysis 2003 Golden Rule of Saving and Capital Accumulation.

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Presentation on theme: "Lecture 31 Macroeconomic Analysis 2003 Golden Rule of Saving and Capital Accumulation."— Presentation transcript:

1 Lecture 31 Macroeconomic Analysis 2003 Golden Rule of Saving and Capital Accumulation

2 Lecture 32

3 3 How does a higher saving rate affect the level of output in the steady state? Low saving country High saving country Saving rate affects level of income but not the growth rates

4 Lecture 34 How does the technological advancement affect the per capita capital and per capita output in the steady state? Primitive Technology Advanced Technology

5 Lecture 35 Golden Rule for Saving and Capital Accumulation Kss Kg C-max

6 Lecture 36 Golden Rule of Saving

7 Lecture 37 A Numerical Example for the Golden Rule of Saving

8 Lecture 38 Saving rate C-max = 1.25 Consumption s*=1.25 y=2.5 k = 25 y = 0.5*k 0.5 s1s2 s4 s5 How High Should be the Saving Rate? Saving Rate that Maximises Consumption

9 Lecture 39

10 10

11 Lecture 311

12 Lecture 312

13 Lecture 313

14 Lecture 314

15 Lecture 315 Optimal Saving and Consumption in Two Period Model

16 Lecture 316 A Three Period Optimal Consumption-Saving Model

17 Lecture 317 Four Optimisation Conditions

18 Lecture 318 Consumption and Savings in Three Periods

19 Lecture 319 Policy Issues: Tax, Saving and Consumption What is the impact in consumption and saving in the above model –If there is a 20 percent tax on interest income? –If there is a 20 percent subsidy in it? –What sort of tax system is better for increasing the ratio of saving? Does a higher rate of VAT promote saving or consumption? –Does a higher rate of tax on labour income encourage or discourage saving? –Does a higher rate of tax on pension income increase saving or consumption?

20 Lecture 320 Which sectors are hit hard when the labour income is taxed more heavily than the capital income? Do workers in the Service sector lobby for Higher capital income tax?

21 Lecture 321 Which Sectors are important for a higher economic growth in the Yorkshire and Humberside region? (annual growth rates)

22 Lecture 322 Why is the Manufacturing Sector So Important for Economic Growth?

23 Lecture 323

24 Lecture 324 Exercises Calculate the saving rate consistent with the golden rule Study of Relative income levels across regions in the UK Study of economic growth in Hulls and Humberside Which are the leading sectors of Economic Growth in the UK and in the Yorkshire and Humberside?


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