Ramsey Growth Model
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A Ramsey Growth Model is a neo-classical model of economic growth based primarily on the work of the economist and mathematician Frank P. Ramsey.
- Context:
- It can provide a framework for understanding how optimal savings behavior affects long-term economic growth.
- It can incorporate consumer optimization to determine the saving rate, which adjusts based on the preferences and intertemporal choices of households.
- It can imply that the outcome in the Ramsey model is necessarily Pareto Optimal, meaning that no one can be made better off without making someone else worse off.
- It can feature the Golden Rule Savings Rate, which maximizes steady-state consumption per capita.
- It can model the central planner's problem of maximizing levels of consumption over successive generations.
- It can be extended to include factors such as population growth, technological progress, and human capital accumulation.
- It can be used to analyze the effects of fiscal policy, such as taxation and government spending, on long-term economic growth.
- It can provide insights into the dynamic behavior of the economy and the paths it takes towards equilibrium.
- It can serve as a basis for further extensions and applications in modern macroeconomic theory.
- ...
- Example(s):
- The Ramsey model applied to analyze the impact of different tax policies on savings and economic growth.
- An extension of the Ramsey model incorporating technological progress to study its effects on long-term economic development.
- The use of the Ramsey model to evaluate optimal government debt levels and their implications for economic growth.
- ...
- Counter-Example(s):
- Solow-Swan Economic Growth Model, which assumes a constant saving rate and does not model consumer optimization explicitly.
- Harrod-Domar Model, which does not account for consumer optimization or endogenous savings.
- See: Frank P. Ramsey, Economic Growth Model, Solow–Swan Economic Growth Model, Pareto Optimal, Golden Rule Savings Rate, Intertemporal Choice, Fiscal Policy, Human Capital Accumulation, Technological Progress.
References
2009
- (Wikipedia, 2009) ⇒ http://en.wikipedia.org/wiki/Ramsey_growth_model
- The Ramsey growth model is a neo-classical model of economic growth based primarily on the work of the economist and mathematician Frank P. Ramsey. The Ramsey model differs from the Solow model in one crucial respect: it explicitly models the consumer side and endogenizes saving. As a result, unlike the Solow model, the saving rate in general is not constant and the convergence of the economy to its steady state is not uniform. Another implication of the endogenous saving rate is that the outcome in the Ramsey model is necessarily Pareto Optimal or that the saving rate is at its golden rule level. It should be noted that originally Ramsey set out the model as a central planner's problem of maximizing levels of consumption over successive generations. Only later was a model adopted by subsequent researchers as a description of a decentralized dynamic economy.