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Macroeconomics > Cobb-Douglas, Solow-Swan, Growth and Ideas > Flashcards

Cobb-Douglas, Solow-Swan, Growth and Ideas Flashcards

1
Q

What three variables appear in a production function?

A

Capital, labour, and productivity.

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2
Q

Does a Cobb-Douglas function have diminishing, constant, or increasing returns to scale?

A

Constant.

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3
Q

Does a Cobb-Douglas function have diminishing, constant, or increasing returns to capital?

A

Diminishing.

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4
Q

What is the cost and benefit of each additional unit of capital?

A

Cost: r
Benefit: MPK

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5
Q

What is the term for the good used to express prices? (e.g. money, tons of apples)

A

The numeraire.

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6
Q

When will a firm stop employing more capital?

A

When the marginal product of capital MPK equals the rental price r.

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7
Q

Does a Cobb-Douglas function have diminishing, constant, or increasing returns to labor?

A

Diminishing.

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8
Q

When will a firm stop employing more workers?

A

When the marginal product of labor MPL equals the wage cost w.

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9
Q

What three variables are exogenous in Cobb-Douglas functions?

A
  1. Productivity, A
  2. Capital supply
  3. Labor supply
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10
Q

Why is it called a general equilibrium, not a partial equilibrium?

A

Partial equilibrium refers to a single market - here we are looking at multiple markets (capital, labor, etc).

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11
Q

What are four reasons for TFP differences across countries?

A
  1. Human capital (skills, education)
  2. Institutions
  3. Technology
  4. Misallocation
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12
Q

What is the main difference with the Solow-Swan model compared to Cobb-Douglas?

A

Solow-Swan endogenises capital.

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13
Q

_____ = ______ at Solow equilibrium.

A

investment, depreciation

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14
Q

In Solow growth, what happens when the investment rate increases?

A

The capital stock grows and output increases.

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15
Q

In Solow growth, what happens when the depreciation rate decreases?

A

The capital stock shrinks and output decreases.

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16
Q

What does the Solow-Swan model imply about long-run growth?

A

There is no long-run growth - capital will reach equilibrium.

17
Q

What gives a larger role to TFP - Cobb-Douglas or Solow-Swan?

A

Solow-Swan.

18
Q

The Solow equilibrium is where sY = dK - in words, this means:

A

The equilibrium is where investment = depreciation.

19
Q

What is the essential reason for a steady state in the Solow model?

A

Investment has diminishing returns but depreciation is constant.

20
Q

Below hitting the Solow steady state, is output rising or falling?

A

Rising.

21
Q

Two weaknesses of the Solow model?

A
  1. Doesn’t explain long-run growth.
  2. TFP, more important than capital, is not explained.
22
Q

The Solow-Swan model is essentially a model of _______ accumulation.

A

Capital.

23
Q

Put the resource constraint Y = C + I into words.

A

Output consists of consumption and investment.

24
Q

Ideas can be used and not be any more scarce - ideas are:

A

Nonrivalrous.

25
Q

What is parameter z in the Romer model?

A

Productivity in regards to ideas.

26
Q

Are the same stock of ideas used in the production and idea functions?

A

Yes, as ideas are nonrivalrous.

27
Q

Are the same stock of workers used in the production and idea functions?

A

No, some workers are producing output, others are producing ideas.

28
Q

What is lowercase L in the Romer labor allocation equation?

A

The percentage of the workforce that produces new ideas.

29
Q

In the Solow model, output per person depends on capital per person. In the Romer model, output __________ depends on _____________.

A

Output per person depends on the TOTAL stock of ideas.

30
Q

What is the central reason that the Romer model is able to supply a model of sustained economic growth?

A

The nonrivalry of ideas.

31
Q

Does the Romer model exhibit transition dynamics?

A

No - the slope is constant.

32
Q

What is the effect of a population increase in the Romer model?

A

Number of researchers rises, thus output increases.

33
Q

What is the effect of an increase in the research share l in the Romer model?

A

Number of researchers rises and number of workers falls, output initially drops but then picks up faster than before.

34
Q

What is the Cobb-Douglas formula for MPK?

A

MPK = A(L/K)^2/3

35
Q

What is the Cobb-Douglas formula for MPL?

A

MPL = A(K/L)^1/3

Macroeconomics (4 decks)

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