growth

Question 1

what are the facts of growth ?

Answer 1

we are moving to LR - where fluctuations occur

determination of output in the LR where growth dominates
we want to understand;
- why some countries grow while others don’t
- why some countries are rich and others aren’t

Question 2

how do we compare output per person across countries ?

Answer 2

usually we use exchange rates but

• ER can vary a lot
• prices of basic goods vary across countries

Question 3

in order to compare standards of living what factors do we need to adjust to ?

Answer 3

• variations in exchange rates

- systematic differences in prices across countries

Question 4

what is the PPP ?

Answer 4

purchasing power parity . the common set of prices in all countries that are used to construct the numbers for GDP or GDPPC

Question 5

what are some consequences of growth ?

Answer 5

• air pollution
• plastics
• sea pollution
• finite resources
  these can effect sustainability and standards of living

Question 6

what was the initial production function ?

Answer 6

Y = AN

A=1

Y = N

Question 7

what was the new production function ?

Answer 7

there are now two factors of production

labour N and capital K

Y = F(K,N)

Question 8

how does technology effect production ?

Answer 8

the affects of technology are constant for now , what restrictions would we apply to the production function when taking technology into account .

we would apply a constant returns to scale restriction

countries with more advanced technology can produce more for the same inputs

Question 9

consider only one input changes , what relationship does this suggest between Y/worker or K/N ?

Answer 9

X = 1 / N per worker terms

Y/N = F(K/N , N/N)

Y/N = F ( K/N , 1 )

also , there is diminishing returns to capital , as K/N increased so does Y/N but at a diminished rate

Question 10

where does growth come from ?

Answer 10

• and increase in K/N

- an increase in the rate of technological progress through edu/ training/ innovation

Question 11

what does sustained growth require ?

Answer 11

sustained technological progress

in the LR a country with this at a higher rate will eventually overtake all other

Question 12

how does capital accumulation effect output per worker ?

Answer 12

will eventually lead to standstill in Y/N so will not lead to growth in LR alone.

Question 13

how does savings rates effect Y/N ?

Answer 13

will have the same Y/N to Y/N’ shift but won’t lead to higher growth rate but higher returns SR/MR

Question 14

what determines the rate of technological progress ?

Answer 14

• education
• innovation
• training
• organisational structures
• underlying political structures