Ch. 8 Catching Up VS. Cutting Edge Flashcards
What is catch-up growth?
Takes advantages of ideas, technologies, or methods of management already in existence
What is cutting edge growth?
Primarily about developing new ideas
What happens when you add more and more capital? What is the equation for this?
1.It will increase your economic output, but at slower rates.
2. The marginal product of capital declines
Y=the square root of K
3. depreciation increase @ a constant rate (delta)
What is the solow growth model?
& What does each letter stand for
Y=F(A,K,eL)
Y= total output, F=function, A=Ideas, K=Physical Capital, eL=Human capital (education x labor)
Suppose ideas and human capital are constant in the solow growth model, what is the new equation?
Y=f(K)
Marginal Product of Capital Definitn (MPk)
the additional output of resulting from using an additional unit of a capital
Which type of growth is greater?
Catch-up growth, but will eventually slow
Equation for Capital Growth
Investment - Depreciation
Equation for output
Consumption + Investment
Depreciation Rate (delta)
fraction of capital that wears out each year
depr=(delta) x K or delta= depr/K
At some point, what does depreciation equal? why?
Investment because capital stock and output will stop growing
What is the key to long run economic growth? why?
Technological knowledge; a way of getting more output from the same input (increase in productivity)
What is the equation for technological knowledge?
Y= A x the square root of K
What happens when inv. > depr? less than? =?
K & Y grow; fall; steady
What is conditional convergence?
among countries with similar steady state levels of output, poorer countries grow faster than richer countries
