Chapter 3

Question 1

What does growth accounting explain?

Answer 1

The part of the growth in total output due to growth in factors of production

Question 2

What is growth theory?

Answer 2

Explains how economic decisions determine the accumulation of factors of production

Question 3

What is the marginal product of labour?

Answer 3

The change in output from an additional unit of labour

Question 4

What is the marginal product of capital?

Answer 4

the change in output due to an additional unit of of capital

Question 5

What is Hicks-neutral technical progress?

Answer 5

An increase in A = increase in productivity -> output increases for a given level of inputs

Question 6

What are the three components of output growth?

Answer 6

1. Capital’s share of income, multiplied by capital growth
2. Labours share of income multiplied by capitals share of income
3. Technical progress

Question 7

What is the capital labour ratio?

Answer 7

the amount of capital per worker

Question 8

What is convergence?

Answer 8

The process of per capita income in a relatively poorer country growing faster and catching up with the per capita income of a relatively more prosperous country

Question 9

When was Canada’s and Japan’s growth rate highest?

Answer 9

Japan grew more quickly in 1992, Canada grew faster after

Question 10

What was the growth rate of the US between 1909-1949?

Answer 10

2.9%

Question 11

What was Solow’s breakdown of contribution to the growth rate?

Answer 11

11% due to capital accumulation, 38% due to increased labour, 51% doe to technical progress

Question 12

What happens if you increase the number of workers without increasing their equipment?

Answer 12

The average worker will have less capital to work with and therefore will be less productive

Question 13

What two things does Neoclassical theory link?

Answer 13

capital accumulation and saving decisions

Question 14

What is steady state equilibrium?

Answer 14

The combination of per capita GDP and per capita capital where the economy will remain at rest or where per capita economic variables are no longer changing

Question 15

Three steps of growth theory:

Answer 15

1. Examine the economic variables that determine the economy’s steady state
2. Study the transition from the economy’s current position to the steady state
3. Add technological progress

Question 16

What is diminishing marginal product of capital?

Answer 16

As capital increases, output increases, but at a decreasing rate

Question 17

When is an economy in a steady state?

Answer 17

When per capita income and capital are constant

Question 18

What three factors do the capital-labour ratio depend on?

Answer 18

1. The rate at which capital depreciates
2. Labour growth
3. saving

Question 19

wAt the steady state, what to things grow at the same rate?

Answer 19

aggregate income and population

Question 20

What is the effect of an increase in the saving rate on economic growth in the short run?

Answer 20

It raises the growth rate of per capita output,

Question 21

What is the effect of an increase in the saving rate on economic growth in the long run?

Answer 21

The steady state capital and output per worker are higher, growth rate of per capita output returns to zero

Question 22

What is the most important input in the output growth accounting equation?

Answer 22

labour

Question 23

What is the most important determinant in the per capita output growth accounting equation

Question 24

What causes long-run growth?

Answer 24

improvements in technology?

Question 25

What does the steady state output per person depend on, in what way (+/-)? (2 things)

Answer 25

1. Depends positively on saving rate
2. Depends negatively on population rate