Chapter 5 Flashcards

(13 cards)

1
Q

how much does gross investment, capital stock and depreciation make up of GDP?

A

gross i = 20
CS = 2 x GDP
depreciation = 7
therefore 15% GDP

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2
Q

what is the effective no. workers? what is production per effective worker a function of?

A

EN is a function of capital per effective worker
Y/EN = F (K/EN, 1) = f(k)
k = K/EN

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3
Q

what is the steady state? what does it mean?

A

situation where economy grows but capital per effective worker and production per effective worker are both constant
K = kEN and Y = f(k) EN

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4
Q

what do we see by using the rule of thumb for growth rates?

A

we see capital stock and GDP grow at a rate = to the population growth + rate tech improves

change in K/K = change in Y/Y = n + g

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5
Q

what is capital stock per effective worker on the steady state growth path?

A

f’(k*)/ (1 + markup) - depreciation = r bar above

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6
Q

what is real IR =?

A

r bar = p + g

where g is the growth of production per worker

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7
Q

what does a higher willingness to save and invest lead to?

A

leads to higher LR levels of K and production in the country

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8
Q

what do we need for GDP to grow in LR?

A

need population growth and/or tech development

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9
Q

what does the golden rule say?

A

to maximise steady state consumption the CS should be increase until MPK = sum of population and technological growth rates + depreciation rate

f’(k) = n + g + depreciation

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10
Q

why does increasing capital stock beyond the steady state level not increase consumption?

A

the investment necessary to maintain additional units of capital PEW will exceed the additional production obtained from higher capital stock

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11
Q

what factors explains income differentials in countries and by how much?

A

differences in physical and human capital - 50%
other factors = political and social structures eg. ‘institutions’ tax system, law and order, corruption

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12
Q

what happens when it becomes progressively harder to improve technology?

A

more and more workers must be put into research and development if technology to improve at constant rate

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13
Q

what has happened to the cost of growth in most advanced economies?

A

increased as a larger proportion of the resources that have been put into R+D

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