human capital

Question 1

dwhy should capital move from rich to poor countries in basic solow model?

Answer 1

large difference in y come from large differences in k and diminishing marginal product of capital
it means that returns to capital in poor countries must be much higher than that in rich so capital should move from rich to poor countries

Question 2

what is human capital?

Answer 2

human capital shows the stock of skills

Question 3

what is the average stock of human capital in the labour force?

Answer 3

it is equal to human capital per worker

Question 4

what are the three components of empiracle definition of human capital according to the world bank?

Answer 4

survival from birth to school age measured using under 5 mortality rates
expected years of learning adjusted school, combining information on the quantity and quality of education
health -2 metrics : 1 adult survival rates ( the fraction of 15 year olds who survive until 60) +2 the rate of stunting for children under age 5

Question 5

what is the general view of production function with human capital?

Answer 5

Y = F( K, H, EL) where K is physical capital, H is human capital, EL is effective labour force

Question 6

what is the cobb douglas function for the production function with human capital?

Answer 6

Y = K^a * H^b *(EL)^(1-a-b)

Question 7

if a+b=1 for the cobb douglas function with human capital what does this mean?

Answer 7

there is constant returns to all capital and raw labour does not matter

Question 8

if a+ b is less than 0 for the cobb douglas function with human capital, what does this mean?

Answer 8

decreasing returns to all capotal

Question 9

how is human capital accumulated

Answer 9

human capital is accumulated in the same manner as physical capital by suspending some part of aggregate income

Question 10

what is the assumption for savings rate for both physical and human capital?

Answer 10

assume exogenous and constant savings rate for both physical and human capital which are both valued at between 0 and 1. they both have an identical depreciation rate

Question 11

what is the equation for production function per worker including human capital?

Answer 11

y= k^ah^bE^(1-a-b)

Question 12

what is the growth rate of output per worker?

Answer 12

g_y = ag_k+bg_h +(1-a-b)g_E

Question 13

what is the production function per efficient worker?

Answer 13

y^~ = (k^~)^a * (h^~)^b

Question 14

what are both types of capital change a result off?

Answer 14

it is a result of an interplay between gross investment and depreciation

Question 15

what is the law of motion of physical capital per effective worker?

Answer 15

(k^~^.)= s_K*y^~ - ( δ + n + g_E) *k^~

Question 16

what is the law of motion of human capital per effective worker?

Answer 16

(h^~^.) = s_Hy^~ - ( δ + n + g_E)h^~

Question 17

what is the steady state in the dynamic system?

Answer 17

it is a resting point, two particular values k^~>0 AND h^~>0 such that if these values are ever reached, the economy stays at them forever ie y^~ is constant

Question 18

what is the formula for the phase diagram for physical capital?

Answer 18

h^~ = ( δ + n + g_E/s_K)^[1/b] * K^~ ^(1-a/b)

Question 19

what occurs when the values of h^~ is lower than the line K^~^.= 0,

Answer 19

physical capital per worker will be shrinking

Question 20

what occurs for all values of h^~ when it is higher than the line H^~^. ?

Answer 20

human capital per worker will be shrinking

Question 21

what are the two cases for returns to capital?

Answer 21

1) decreasing returns to all capital (k and h taken together): a+b<1, standard solow model assumption leading to lim(k-> infinity):g_k* = lim(k->infinity):g_h* = 0. growth in K and h will eventually fall to zero. thus having technological progress will remain the only source of providing economic growth on the BGP. un this case, there will be no source for a sustained increase in living standards
2) constant returns to all capital: a + b = 1, permanent growth is possible even under zero technological progress

Question 22

what is the source of human capital in the solow framework?

Answer 22

the source of human capital forgoing consumption

Question 23

what is the source of human capital in the lucas model?

Answer 23

the lucas model considers a representative consumer and introduces production function for human capital where the source of human capital is foregoing time

Question 24

what is the lucas model production function?

Answer 24

Y=A F( K, hL) = A k^a (uhL)^(1-a) where u is a fraction of time spent working, h is a stock of human capital per person, L are units of raw labour, hL is the stock of human capital in the economy

Question 25

what is the key idea of Lucas 1988?

Answer 25

production of the new human capital is proportional to existing human capital -> no diminishing marginal productivity