Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Macroeconomics > 11+12 - Solow Growth > Flashcards

11+12 - Solow Growth Flashcards

1
Q

What is the motivation and idea behind the Solow-Swan model?

A
  • Motivation: Empirically, there has been huge investment in Asia and small investment in Africa. Hence, we have reason to believe that investment is important for growth.
  • The Solow-Swan model therefore isolates the role of capital for growth
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the aggregate production function in the Solow growth model and what do its components mean?

A

Y =output, K =capital and L =labor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Which three characteristics follow from saying that the production function is “neoclassical”?

A
  • Constant returns to scale (CRS)
  • Positive but diminishing marginal products
  • Inada Conditions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the difference between discrete and continuous time?

A
  • discrete time: quarters, months, periods. A variable keeps their particular value for a certain period.
  • continuous time: period is infinitissimately small. A variable keeps their particular value for an infinitissimately small period (time span -> zero)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What does ẏt denote?

A

ẏt = d yt / d t = evalaution of how y is changing at every instant

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the Inada conditions?

A

The Inada conditions are assumptions about the shape of a production function that guarantee the stability of an economic growth path in a neoclassical growth model.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is Lt in the Solow model?

A

labor = population (all people work and are equally
productive)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is this (how can it be rewritten)?

A

= population growth n (constant), but:

n = fertility - mortality + migration.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How does the assumption of constant depreciation 𝛿 change the equilibrium assumptions in the Solow model?

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is yt in the Solow model?

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the research question that Solow-Swan asks?

A

Could an economy grow forever if we increased only capital stock permanently?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is kt in Solow?

A

Kt/Lt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the growth rate of capital per person, k = K/L?

A

γkₜ = dot-kt / kt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Describe potential econometric issues which may arise when one tries to estimate the speed of convergence on a cross-section of countries or regions.

A

The basic problem arises because countries do not necessarily converge to the same steady state of per-capita income. (The steady state value may depend on the initial conditions.)

  • If the steady state y is the same for all countries, then OLS is consistent.
  • If not: With panel data one might be able to take care of this problem by using a fixed-effects model.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are shortcomings of the Solow-Swan model?

A
  • The saving rate is exogenous and constant
  • This does not allow consumers to behave optimally
  • Therefore not possible to discuss how incentives affect the behavior of the economy
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is k*?

A

Steady State capital stock: at this point savings are just enough to compensate for depreciation.

Note: Given our assumptions, the existence of a Steady State is guaranteed. With a neoclassical production function, growth in per capita variables must stop.

17
Q

Do poorer countries grow faster?

A
  • Poorer countries’ GDP grows faster than the one of richer countries.
  • The further away a country is from its steady-state the quicker it will grow in the upcoming years.
  • This is known as the convergence hypothesis.
18
Q

What is labor productivity?

A

Y/L

19
Q

What is the capital coefficient?

A

K/Y

20
Q

What is the real wage?

A

W/P

21
Q

What is the real rate of return to capital?

A

r = R/P

22
Q

What is the labor income share?

A

WL / PY

23
Q

What is the capital income share?

A

RK/PY

24
Q

Barro, Sala-i-Martin (2003) find:

The rate of convergence is, however, only about 2 percent per year. Thus, it takes about 35 years for an economy to eliminate one-half of the gap between its initial real per capita GDP and its long-run or target level of real per capita GDP. (This target tends to grow over time.)

How to Explain 2 Percent per Year?

A

A broad view of capital:

  • Human Capital
  • Public Infrastructure
  • Social Infrastructure
25
Q

What is the half-life?

A

The time t it takes for log kt to move halfway between log k0 and log k* is called the half-life. It is given by e-βt = 1/2

Macroeconomics (8 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions