C.8 Long-Run Economic Growth

Question 1

Balanced growth

Answer 1

A situation in which the capital-labour ratio and real GDP per worker grow at the same constant rate

Question 2

Capital accumulation

Answer 2

The change in capital stock over time

Question 3

Endogenous growth theory

Answer 3

A theory of economic growth that tries to explain the growth rate of technological change

Question 4

Labour-augmenting technological change

Answer 4

Improvements in economic efficiency that increase the productivity of labour but do not directly make capital goods more efficient

Question 5

Solow growth model

Answer 5

A model that explains how the long-run growth rate of the economy depends on saving, population growth, and technological change

Question 6

Steady state

Answer 6

A long-run equilibrium in the Solow growth model

Question 7

Difference between a stock variable and a flow variable

Answer 7

A stock variable is measured at a point in time, while a flow variable is measured per time period

Question 8

Investment function

Answer 8

i = sf(k)
where,
y = f(k)

Question 9

Depreciation

Answer 9

dk

Question 10

How do we find the steady state

Answer 10

Find a level of capital-labour ratio that investment equals depreciation

Question 11

Convert Cobb-Douglas to per-worker form

Answer 11

Divide both sides by L so you get a

y = k^alpha form

Question 12

Dilution

Answer 12

= nk

where growth rate of workers is n

Question 13

Break even investment

Answer 13

i = dk + nk

Question 14

Breakeven investment with tech change

Answer 14

i = (d + n + g)kbar
where,
kbar = K/EL = capital per effective worker
g = growth in effectiveness of workers

Question 15

Growth rate of capital stock

Answer 15

sA - d

growth rate of capital stock = growth rate of real GDP per worker

Question 16

Steady state investment

Answer 16

savings = investment = sy*

Question 17

Steady state consumption

Answer 17

consumption = (1-s)y*

Question 18

Real GDP per worker equation and steady-state growth rate

Answer 18

Equation: Y/L = y*E

Growth rate: g

Question 19

Real GDP per capita equation and steady-state growth rate

Answer 19

Eq’n:
(Y/Pop) = yE(L/Pop)
Growth rate: g

Question 20

Real GDP eq’n and steady-state growth rate

Answer 20

Eq’n: Y = yEL

Growth rate: n + g

Question 21

Growth rate of kbar and ybar

Answer 21

Zero. Capital, real GDP, and C per effective worker are constant

Question 22

What will affect the steady-state growth rate of the standard of living?

Answer 22

Only changes in the underlying rate of labour-augmenting technological change

Question 23

Rate of growth in steady state for total values Y, K, and C

Answer 23

Rate of tech growth plus population growth

Question 24

Rate of growth in steady state for values per worker y, k, and c

Answer 24

Rate of tech growth

Question 25

What is the balanced growth path

Answer 25

Real GDP per hour worked grows over time when the economy is at the steady state and experiencing balanced growth

Question 26

If capital labour ratio is greater than steady state value then growth from convergence is

Answer 26

negative