Lecture 1 Economic growth

Question 1

Steps for developing a macroeconomic model?

Answer 1

Real World - system under study, then make a simulation study. Simulate the Model, simulate the experiment and analyse it. Draw conclusions and compare it with the System - improve it

Question 2

Name the business cycle and its phases!

Answer 2

Cycle goes around the normal growth part (dotted line). It is the aggregate economic activity and goes up in an expansion and goes down during the contraction

Question 3

Name the standard Kaldor Facts!

Answer 3

1. per capita output grows over time, and its growth rate doesnt tend to diminish.
2. growth rate of output per worker differs substantially across countries but the rates tend to converge
3. shares of labor and physical capital in GDP are nearly constant.
4. ratio of physical capital to output is nearly constant
5. rate of return to capital is nearly constant.
6. physical capital per worker grows over time

Question 4

Name the new Kaldor Facts!

Answer 4

1. Increases in the extent to the market
2. Accelerating growth
3. Variation in modern growth rates
4. Large income and TFP differences
5. Increases in human capital per worker
6. Long run stability of relative wages

Question 5

Assumptions of the Solow Model

Answer 5

1. One good
2. Constant return to scale
3. Perfect competition in input and factor markets
4. Population growth is exogenous
5. Capital Stock decays at constant rate
6. Output requires only labour and capital
   Simplifying: 7. HHs save a constant fraction of their income
7. HHs work a constant fraction of their time.

Question 6

Name the production function assumptions

Answer 6

1. positive, but diminsh. returns
2. constant returns to scale
   y on yaxis, capital on xaxis

Question 7

Name the Solow CD fct

and other important equations

Answer 7

Y = F(K,L) = K^a * L^1-a
I = sY
K. = I - dK
L./L =n
changes in s n or delta will affect the levels of y and k, but not the growth rates

Question 8

Prediction and Conclusion of the Solow

Answer 8

In SS, GDP per worker will be higher in countries where the rate of investment is high and where the population growth rate is low.
Solow identifies 2 possible sources of variation in output per worker. Differences in K/L, Differences in the effectiveness of labour. Only latter can lead to a permanent growth in Y/L

Question 9

Sources of econ growth in Solow?

Answer 9

aris from a residual. Can be interpreted as education and skills of the labour force, strengths of property right, quality of infrastructure. Y = AF(K,N)

Question 10

Steps in breaking output growth into it causes:

Answer 10

1.Get Data on deltaY/Y, deltaK/K, deltaN/N adjusting for quality changes
2. Estimate ak an from historical data
3. Calculate contributes of K and N
3. Calculate productivity growth as the residual
deltaA/A = deltaY/Y - ak deltaK/K - an deltaN/N