The document provides an overview of lecture material on macroeconomics including: - An exam scheduled for September 28th covering Chapter 8 on economic growth models. - An explanation of the Solow growth model where output is a function of capital and shows diminishing returns. The model can be used to show how increasing savings or productivity can lead to economic growth. - An introduction to Paul Romer's endogenous growth model where ideas lead to increasing returns rather than diminishing returns as in the Solow model. - An overview of concepts in financial systems including how interest rates, bonds, leverage, and financial intermediaries work.

2. Lecture 7
Macroeconomics

3. Opening
Prayer

4. Quiz Master

5. Exam 1
Tuesday Sept 28
3 hours
Canvas
Proctorio
Multiple Choice
Short Answer

6. Chapter 8
Growth, Capital
Accumulation, and Ideas
Videos

7. Model
Simplify
Assumptions

8. Robert Solow Paul Romer

9. Functions
X
Y
Linear
Diminishing
Exponential
Y = X
Y = X2
Y = √X

10. Solow Model
Income = f(Capital)
Y = f(K)
Capital has diminishing returns
Y = f(√K)
Save from Income to replace Capital
Saving = sY
Depreciation is real
D = dK

11. Y = Output
A = Ideas
K = Capital
e = education
L = Labor
Y = f(A, K, eL)
Solow Model

12. Y = F(K)
function is not linear
diminishing
Y = √K
Solow Model

13. Solow Growth Model
Y = √K
S = I = s√K
D = dk
Capital K
Y
Output

14. K = 100
s = .30 or 30%
d = .025 or 2.5%
Y = ?
S = ?
D = ?
Consumption = ?
Quiz

15. Solow Growth
Model Y =
√K
S = I =
s√K
D = dk
Capital K
Y
Output
10
0
10
3
2.5

16. Solow Growth
Model Y = √K
S = I =
s√K
D = dk
Capital K
Y
Output
144
12
3.6
0
Consumption
8.40

17. Increase Savings
Increase
Productivity
Two Ways to Grow

18. Solow Growth
Model
Raise
Savings
Rate
30%
40%
Capital K
Y
Output

19. Solow Growth Model
income is a function of K
add a productivity factor to
K
A = technology
Y = √K
Y = A√K

21. Increase Technology

22. Solow Growth Model
Yabut….
Diminishing?
Ideas
Increasing Returns

23. Romer
Growth Model
Ideas
Paul Romer

24. Every generation has
underestimated the
potential for finding new
ideas…Possibilities do not
add up.They multiply
A + B
A x B
AB

25. Economics of Ideas
Ideas
Inventions
Innovations
Increasing Returns

26. A candle loses
nothing by lighting
another candle
- John Heller

27. How many seeds in an apple?
How many apples in a seed?

28. Rates of Return
Increasing
Romer
Decreasing
Solow

29. Chapter 9
The Financial
System

30. Savers ,
Lenders,
Investors
Borrowers
Money
Market
Interest
Rate
Quantity

31. I.O.U.
$1
Dr. Pooley

32. I.O.U.
$100
Sept. 23, 2022
Dr. Pooley

33. I.O.U.
$100 plus 5%
Sept. 23, 2022
Dr. Pooley

34. I.O.U.
$100 plus 10%
Sept. 23, 2022
Dr. Pooley

35. I.O.U.
$100
Coupon Rate 10%
Each Year
Sept. 23, 2032
Dr. Pooley
$10 $10 $10 $10 $10 $10 $10 $10 $10 $10

36. Bonds
Special IOU
Price and Interest Rate go in
opposite directions

37. OPM
Other People’s
Money
Leverage

38. Debt
Equity
=
Leverage Ratio

39. Leverage Ratio
Other’s Money
My Money
=

40. $50
$50
=
1
Leverage Ratio

41. $90
$10
=
9
Leverage Ratio

42. Leverage
Start with $10
Borrow $90
Buy for $100
Sell for $110
Payback $90
End with $20
Double your $10

43. Leverage
Start with $10
Borrow $90
Buy for $100
Sell for $90
Payback $90
End with $0
Lost your $10

44. Leverage
Start with $10
Borrow $90
Buy for $100
Sell for $80
Payback $90
End with -$10
Bankruptcy

45. Concepts
Opportunity Cost
Comparative Advantage
Demand and Quantity Demanded
Price Ceilings and Price Floors
GDP
GDP per Capita
Nominal vs. Real
Rule of 70s
Time Preference
Financial Intermediaries
Capitals of Innovation
Worldview
Your Country