C.8 Long-Run Economic Growth Flashcards
Balanced growth
A situation in which the capital-labour ratio and real GDP per worker grow at the same constant rate
Capital accumulation
The change in capital stock over time
Endogenous growth theory
A theory of economic growth that tries to explain the growth rate of technological change
Labour-augmenting technological change
Improvements in economic efficiency that increase the productivity of labour but do not directly make capital goods more efficient
Solow growth model
A model that explains how the long-run growth rate of the economy depends on saving, population growth, and technological change
Steady state
A long-run equilibrium in the Solow growth model
Difference between a stock variable and a flow variable
A stock variable is measured at a point in time, while a flow variable is measured per time period
Investment function
i = sf(k)
where,
y = f(k)
Depreciation
dk
How do we find the steady state
Find a level of capital-labour ratio that investment equals depreciation
Convert Cobb-Douglas to per-worker form
Divide both sides by L so you get a
y = k^alpha form
Dilution
= nk
where growth rate of workers is n
Break even investment
i = dk + nk
Breakeven investment with tech change
i = (d + n + g)kbar
where,
kbar = K/EL = capital per effective worker
g = growth in effectiveness of workers
Growth rate of capital stock
sA - d
growth rate of capital stock = growth rate of real GDP per worker
Steady state investment
savings = investment = sy*
Steady state consumption
consumption = (1-s)y*
Real GDP per worker equation and steady-state growth rate
Equation: Y/L = y*E
Growth rate: g
Real GDP per capita equation and steady-state growth rate
Eq’n:
(Y/Pop) = yE(L/Pop)
Growth rate: g
Real GDP eq’n and steady-state growth rate
Eq’n: Y = yEL
Growth rate: n + g
Growth rate of kbar and ybar
Zero. Capital, real GDP, and C per effective worker are constant
What will affect the steady-state growth rate of the standard of living?
Only changes in the underlying rate of labour-augmenting technological change
Rate of growth in steady state for total values Y, K, and C
Rate of tech growth plus population growth
Rate of growth in steady state for values per worker y, k, and c
Rate of tech growth
What is the balanced growth path
Real GDP per hour worked grows over time when the economy is at the steady state and experiencing balanced growth
If capital labour ratio is greater than steady state value then growth from convergence is
negative
