Avd Macro I

Question 1

Economic growth according to Foley and Michl?

Answer 1

Economic growth is the cumulative increase in the productive power of human labor effort to meet human needs through changes in the scale and technology of production, the acquisition of skills and knowledge, and the accumulation of means of production such as tools, buildings, and transportation systems (Foley & Michl 2010:49)

Question 2

What is one useful way to “to classify theories of economic growth?” (Foley and Michl)

Answer 2

“in terms of the key factor that they identify as limiting or constraining growth”

Question 3

What are the main candidates for limitations on growth within theories of economic growth?

Answer 3

1. natural resources (land),
2. human resources (skilled and knowledgeable workers), 3. produced resources (capital),
3. and aggregate monetary demand.

Question 4

Who are the outstanding figures in classical political economy according to Foley and Michl?

Answer 4

Adam Smith (1723 – 1790), Thomas Malthus (1766 – 1834), and David Ricardo (1772 – 1823).

Question 5

What is the basis of the classical political theory?

Answer 5

“the organization of production through a division of labor sustained by the exchange of products on markets” (Foley & Michl 2010:40)

Question 6

How is the average rate of profit express and what is it a result of?

Answer 6

r = ( 1 – ω)ρ
r = average rate of profit
( 1 – ω) = profit share - wage share
ρ = the ratio of value-added to the value of the capital stock

Question 7

The Cambridge critique

Answer 7

»Most of the debate is mathematical, but some major elements can be explained in simple terms and as part of the ‘aggregation problem’. That is, the critique of neoclassical capital theory might be summed up as saying that it suffers from the fallacy of composition, i.e., that we cannot simply jump from microeconomic conceptions to an understanding of production by society as a whole. The resolution of the debate, particularly how broad its implications are, has not been agreed upon by economists.« (from Wikipedia)

Question 8

Secular variation

Answer 8

The secular variation of a time series is its long-term non-periodic variation (https://en.wikipedia.org/wiki/Secular_variation). Quentin is what is long term.

Question 9

Harrod-neutral

Answer 9

Harrod-neutral: Pure labor-saving (or labor-augmenting) technological change, which raises labor productivity 1/a0 but leaves capital productivity 1/a1 unchanged (thus, capital intensity k = a1/a0 rises). One can think of this as the adoption of new and improved machines that don’t produce more output per machine, but which can be operated by less workers. Named for 20th-century British economist Roy Harrod of Cambridge (Blecker & Setterfield, Book Manuscript, Draft of July 20, 2015: 21)

Question 10

Hicks-neutral

Answer 10

Hicks-neutral: Factor-saving (augmenting) technological change, which raises the productivity of both labor and capital proportionately, so that 1/a0 and 1/a1 both rise by the same percentage and capital intensity k = a1/a0 remains unchanged. One can think of this as the adoption of new machines that are intrinsically more efficient (produce more out- put per machine) and also require less labor to operate them, in the same proportions. Named for another 20th-century British economist, John (J.R.) Hicks of Oxford (Blecker & Setterfield, Book Manuscript, Draft of July 20, 2015: 21)

Question 11

Marx-biased

Answer 11

Marx-biased: Technological change that is labor-saving but capital-using, so that the productivity of labor 1/a0 rises but the productivity of capital 1/a1 actually falls and capital- intensity k = a1/a0 increases sharply. This refers to the replacement of labor by large-scale machinery that make labor more productive, but which raises capital costs even while reducing labor costs. This type of change is named for Marx (1867 [1976]), but was earlier anticipated by Ricardo (1821 [1951], chap. 31). (Blecker & Setterfield, Book Manuscript, Draft of July 20, 2015: 21)

Question 12

Solow-neutral

Answer 12

Solow-neutral: Pure capital-saving technological change, which raises the productivity of capital 1/a1 but leaves the productivity of labor 1/a_0 unchanged so that capital-intensity k = a1/a_0 falls. A contemporary example is the adoption of newer, cheaper and more efficient computers, which lower capital equipment costs for employers, but still require the same number of workers to operate them. Although this is named for U.S. economist Robert M. Solow of MIT, the concept was anticipated by Marx in his recognition of capital-saving technological change as a “counteracting tendency” to his FTRP (Blecker & Setterfield, Book Manuscript, Draft of July 20, 2015: 21)

Question 13

How are the foundations for growth theory different between the classical-Marxian framework later neoclassical models?

Answer 13

“The important point, however, is that the distinctive behavior of different social classes (especially in regard to saving) plays a crucial role in the classical-Marxian framework, and this provides a different foundation for growth theory than later neoclassical models founded upon the assumption of a single “representative agent” with a uniform type of saving behavior.” (Blecker & Setterfield, Book Manuscript, Draft of July 20, 2015: 1-2)

Question 14

Describe Keynes’s liquidity preference function

Answer 14

“The LM curve describes equilibrium between the stock of real money balances and the demand for them (which Keynes called “liquidity preference,” providing the “L” in LM).” http://academic.reed.edu/economics/parker/314/Coursebook/Ch02.pdf()

Question 15

What is argument made by Say’s Law?

Answer 15

“the argument that generalized overproduction of commodities in relation to demand is impossible in a market economy, plays a central role […] a willingness to deny or criticize Say’s Law is one of the hallmarks of economic heterodoxy, and an important token by which the orthodox recognize the heterodox. “ (Foley 1985, Say’s law in Marx and Keynes). Keynes ( 1936, p. 20) points out that a “third choice exists, namely, to hold money rather than spending it in any way” and Marx points out that “interval in time between the two complementary phases of complete metamorphosis of a commodity become too great” it can produce a crisis “Thus in both Marx and Keynes the first refutation of Say’s Law is at the formal level of pointing out that the existence of money creates the possibility of a crisis of general overproduction of (non-money) commodities.” (ibid)

Question 16

What are the distributional hypotheses ( i.e. model closures) Blecker and Setterfield (2015) identifies in the writings of Smith, Ricardo, Marx?

Answer 16

1. An exogenously given real wage
2. An exogenously given wage share of national income
3. Full employment or a constant unemployment rate.
4. A given rate of profit, determined by financial market forces.

Question 17

What are the three types of exogenous parameters in the classical Marxian model?

Answer 17

1. parameters governing income distribution (whatever determines r or w)
2. saving (the rate of accumulation out of profits, s_r)
3. technology (the input-output coefficients, a_0 and a_1).

Question 18

What are the three central behavioral equations in Keynes accordion to Victoria Chick (1983:v)?

Answer 18

1. the consumption function
2. the investment equation
3. liquidity preference

Question 19

What does Robinson men by “inflation barrier?”

Answer 19

According to Asimakopulos (1991:171) “The level of money-wage rates is an important determinant of the price level in her model, as in Keynes’s, because of its effects on the costs of production. She assumes that it is exogenously given except in two kinds of situations. Money-wage rates are assumed to increase when there is an excess demand for labour at existing wages, or when the rate of investment and rentiers’ consumption is so high given available productive capacity, that prices are sharply increasing. This increase in prices depresses real-wage rates below what workers are willing to accept, and ‘an irresistible demand for higher money wages makes itself felt’ (42). In such a situation the ‘inflation barrier’ (Robinson 1956: 48) is said to have been reached, and the monetary authorities are assumed to respond by imposing credit restraints that restrict investment. The inflation barrier thus imposes a limit on the ability of firms to accumulate as they please in this ‘Keynesian’ model. The level of real-wage rates at which the inflation barrier is established depends very much on the levels of real-wage rates achieved in the past, the degree of organisation of workers, and on class relations between workers and employers, in general. This is one of the important areas where historical and social factors affect the analysis, because sharp class antagonisms that keep bringing the inflation barrier into play, would impede accumulation and growth.”

Question 20

What does Keynesian stability condition say?

Answer 20

“saving reacts more than investment to changes in the rate of utilization [because] the slope of the saving function is steeper than that of the investment function” (Lavoie 2015:362) i.e. S_\pi > gamma_2 and according to Setterfield this is what makes “us” moves towards equilibrium in the model.