rule of 72
72/growth rate= the time it will take for the underlying variable to double
Benefits of economic growth
- rising avg living standards
- addressing poverty and inequality (although not really recently)
Costs of economic growth
-forgone consumption
- social costs: obsolescence of workers’ skills
Sources of econ growth
- growth in labour force
- growth in human capital
- growth in physical capital
- techno improvement
Give the formula for private savings and for public savings
Private= Y*-T-C
public= T-G
Give the formula for national savings
NS= Y*-C-G
So, increase in govt spending or consumption decreases national savings.
The supply curve for national savings and the investment demand curve make up the economy’s market for financial capital
What does an excess supply of national savings do to the interest rate? What does an excess demand for investment do to the interest rate?
excess supply drives it down, the higher demand for bonds drive their prices up and their yields down
Exces demand for investment increases the supply of bonds, thus their price goes down since demand is less than supply, yields go up
2 key assumptions of neoclassical growth
-Diminishing marginal returns when a single factor increases
- constant returns to scale when all increase together
What does labour force growth alone lead to
All else fixed, it will lead to increases in GDP but an eventual decline in average material living standards
Physical and human capital accumulation together, consequences on GDP and material living standards?
Capital accumulation such as this leads to improvement of material living standards, but because of diminishing marginal returns, these improvements are smaller with each additional increment of capital
Balanced growth with technology constant’s effect on living standards and GDP
If capital and labour grow at the same rate, GDO will increase
BUt it won’t lead to increases in per capita output, so no improvement in material livings standards
Explain the importance of techno change
- first, it is assumed exogenous
- new knowledge can contribute to the growth of potential output even with everything else constant
What’s embodied technological change?
techno improvements are contained in the new capital goods
How does solow estimate growth and what’s it called
- the solow residual
It the part of growth that isn’t explained by capital accumulation or labour force growth
Should workers be afraid of techno change?
- unfounded, no
- as long as labour markets adjust, the level of employment should stay the same
- that being said, the most adaptative workers are the ones for whom its the truest
What do new economic growth theories state?
- technological change would in fact be endogenous to economic signal, responsive to the economy.
occurs in response to - learning by doing
- knowledge transfer
- market structure and innovation
- shocks and innovation
How could possible increasing marginal returns exist
- capital could in fact be subject to increasing marginal returns, because
- once costs of innovation are paid, then it can happen
- economics of ideas
Limits to growth?
resource exhaustion(less true since we adapt)
environmental degradation
