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Macroeconomics
Lecture 10
Saving, Investment,
and the Financial System
Chapter 9
Questions?
Romer
Growth Model
Ideas
Paul Romer
Every generation has
underestimated the potential for
finding new ideas…Possibilities do
not add up.They multiply
A + B
A x B
AB
Economics of Ideas
Ideas
Inventions
Innovations
Increasing Returns
A candle loses
nothing by
lighting another
candle
- John Heller
Rates of Return
Increasing
Romer
Decreasing
Solow
Economics of Ideas
Profits motivate
Share without losing value
Benefit but not pay
Government encourage
Larger market, more
incentive
Why are apps
so cheap?
Large fixed cost
Zero marginal cost
Huge market
1.2 billion
$1 million
$1
sell 2 million
$2 million
Profit
$1 million
Research and
Development
$11.5 billion a year
Intellectual
Financial Physical
Human
Culture
Entrepreneur
make more ideas?
patents
copyrights
education
dignity
respect
Flying Shuttle
Single most important invention
launching the Industrial Revolution
John Kay Steve Jobs
Economics of Ideas
Imitators drive
innovators out of the
market
Patents
20 year monopoly
Economics of Ideas
People
Incentives
Creativity
Incentives
dignity
property rights
honest government
political stability
rule of law
Increase the number
of ideas per hour?
ideas for making it
easier to create
more ideas
Intellectual
Financial Physical
Human
Culture
Entrepreneur
Stuff
unorganized
How we use
our stuff
The earth
is full..
Organizing
Intelligence
Agency
Creativity
Likeness
Value
Bring
Order to
Chaos
Making things smart
to be agents
D&C 104:17
intelligizing capitals
Saving, Investment, and the
Financial System
How many
marshmallows would
you have in 24 hours if
you started with one and
they were doubled every
15 minutes?
2
96
The number of marshmallows would fill 1,200 earths

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