Transcription of Chapter 3 The Neoclassical Growth Model
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Chapter 3 The Neoclassical Growth Model
Chapter 3. The Neoclassical Growth Model 75. Economic Growth : Lecture Notes In the Solow Model , agents in the economy (or the dictator) follow a simplistic linear rule for con . sumption and investment. In the Ramsey Model , agents (or the dictator) choose consumption and investment optimally so as to maximize their individual utility (or social welfare). The Social Planner In this section, we start the analysis of the Neoclassical Growth Model by considering the optimal plan of a benevolent social planner, who chooses the static and intertemporal allocation of resources in the economy so as to maximize social welfare. We will later show that the allocations that prevail in a decentralized competitive market environment coincide with the allocations dictated by the social planner.
Economic Growth: Lecture Notes 3.1.2 Technology and the Resource Constraint • We abstract from population growth and exogenous technological change. • The time constraint is given by zt + lt ≤ z. We usually normalize z = 1 and thus interpret zt and lt as the fraction of time that is devoted to leisure and production, respectively.
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