8 Flashcards
Why do poorer countries grow faster than rich countries?
Marginal returns get smaller even if growth size stays the same
they are ‘catching up’
What is catching-up growth versus cutting-edge growth?
catching up: growth due to capital accumulation
cutting-edge: growth due to new ideas
What is the Solow Growth Model?
growth = f(K,L,E,A)
How is the production function specified in the Solow Growth Model?
y=f(A,K,E,L)
economic growth as a function of factors of production
What is capital in the Solow Growth Model?
K
structures, equipment, machines
What is MPK?
Marginal product of capital:
increase in output with one more unit of capital-diminishes over time
Why are there diminishing returns to capital over time?
Increase in capital does not include increase in productivity or labor to work with the capital
What is investment consumption and depreciation in the Solow Growth Model?
Consumption: Output for the year used for enjoyment y=root(K)
Investment: Output for the year used to grow or replace capital stock i=0.3*Y
Dpereciation: units depreciated/total units
What is the steady-state level of capital in the Solow Growth Model?
When investment=depreciation
no new net investment
What are the implications of the Solow Growth Model?
Capital accumulation can’t drive growth in the long-run
Greater investment rates cause grater output
What is conditional convergence?
Catching up growth - poor and wealthy incomes converge over time due to poor growing faster
What can promote cutting-edge growth?
Profit from research/patents
Spillovers/positive externalities can be encouraged byyyy
government/subsidies, tax breaks
What is capital stock?
output that has been saved and not consumed
