final Flashcards
(207 cards)
Growth
is the steady increase in aggregate output over time.
measuring the standard of living
- We care about growth because we care about the standard of living.
- Output per person, rather than output itself, is the variable we compare over time or across countries.
- We need to correct for variations in exchange rates and systematic differences in prices across countries.
- When comparing the standard of living across countries, we use purchasing power parity (PPP) numbers which adjust the numbers for the purchasing power of different countries.
Growth in Rich Countries since 1950
Countries with lower levels of output per person in 1950 have typically grown faster.
Change in Growth in Rich Countries since 1950 VS 1960
When we look at 85 countries for which we have data, we see that there is no clear relation between the growth rate of output since 1960 and the level of output per person in 1960.
For the OECD countries, evidence of convergence.
For the OECD countries, there is clear evidence of convergence.
- Convergence is also visible for many Asian countries, especially for those with high growth rates, called the four tigers—Singapore, Taiwan, Hong Kong, and South Korea.
- Most African countries were very poor in 1960, and some of them had negative growth of output per person between 1960 and 2011 due in part to internal or external conflicts.
aggregate production function
Y = F ( K, N)
where Y is output,
K is capital, and N is labour.
The function F depends on the state of technology.
susieja visą ekonomikos produkciją su visu ekonomikoje įdarbinto darbo kiekiu
Y = F ( K, N)
aggregate production function
where Y is output,
K is capital, and N is labour.
The function F depends on the state of technology.
constant returns to scale:
xY =F ( xK, xN)
tai, kas atsitinka su ilgalaike grąža, kai didėja gamybos mastas, kai visi sąnaudų lygiai, įskaitant fizinio kapitalo naudojimą, yra kintami.
production function and constant returns to scale imply
a simple relation between output per worker (Y/N) and capital per worker (K/N):
Y/N = F * ( K / N, 1)
Decreasing returns to capital:
Increases in capital, given labour, lead to smaller and smaller increases in output per worker.
Kapitalo padidėjimas, atsižvelgiant į darbo jėgą, lemia vis mažesnį produkcijos vienam darbuotojui padidėjimą.
Decreasing returns to labour:
Increases in labour, given capital, lead to smaller and smaller increases in output.
Darbo jėgos padidėjimas, atsižvelgiant į kapitalą, lemia vis mažesnį gamybos padidėjimą.
Increases in capital per worker:
Movements along the production function.
Improvements in the state of technology:
Shifts (up) of the production function, lead to an increase in output per worker for a given level of capital per worker.
Growth comes from
capital accumulation (a higher saving rate) and technological progress (the improvement in the state of technology)
Interactions between Output and Capital since 1970
Since 1970, the US saving ratio—the ratio of saving to gross domestic product—has averaged only 17%, compared to 22% in Germany and 30% in Japan.
Even if a lower saving rate does not permanently affect the growth rate, it does affect the level of output and the standard of living
Output, in the long run, depends on two relations
- The amount of capital determines the amount of output
- The amount of output being produced determines the amount of saving, which in turn determines the amount of capital being accumulated over time.
Higher capital per worker leads to …
to higher output per worker.
Assume: the economy is closed, public saving is 0, and private saving is proportional –> So the relation between output and investment:
The economy is closed: I = S + (T − G)
Public saving (T − G) is 0: I = S
Private saving is proportional to income: S= sY
where s is a saving rate, which has a value between 0 and 1.
So the relation between output and investment:
It = sYt
It = sYt
Investment is proportional to output.
The higher (lower) output is, the higher (lower) is saving and so the higher (lower) is investment
It = sYt
the economy, public savings, and private savings are:
The economy is closed: I = S + (T − G)
Public saving (T − G) is 0: I = S
Private saving is proportional to income:S = sY
where s is a saving rate, which has a value between 0 and 1.
The change in the capital stock per worker
is equal to saving per worker minus depreciation:
s* Yt/N - δ* Kt / N
Capital per worker refers to the measure of how much capital exists in the economy and how good that capital is. Moreover, improvement in the quality of capital per worker leads to economic growth since employees will make more services and goods with better capital.
δ meaning
where (delta) is capital depreciation.
If investment per worker exceeds (is less than) depreciation per worker
If investment per worker exceeds (is less than) depreciation per worker –> the change in capital per worker is positive (negative).
When capital and output are low –> …
When capital and output are high –> …
When capital and output are low, investment exceeds depreciation and capital increases.
When capital and output are high, investment is less than depreciation and capital decreases.