Lecture Note #9

Question 1

What is long-term economic growth centered around?

Answer 1

finding ways to boost aggregate supply, labor, capital, and tech

Question 2

Considering the GDP growth rate, how long does the time period have to be to provide a reliable indication of long-term economic growth?

Answer 2

At least 5 - 10 years, maybe even longer

Question 3

Difference between GDP growth rate and GDP per capita?

Answer 3

GDP per capita is equal to GDP divided by population

GDP is growth rate entirely that is not accounting for population growth

Question 4

What is the reason for the higher levels of GDP per capita?

Answer 4

Growing share of services sector relative to manufacturing and primary sector

Question 5

What is the main reason why services sector gain percentage participation in total GDP as GDP per capita ?

Answer 5

since households and food are no longer a worry, income rise shift priorities towards a variety of services like luxury goods, health, education, and other public goods.

Question 6

What are the three variables needed for Cobb-Douglas production function?

Answer 6

Labor (L)
Capital (K)
Total Factor Productivity (A)

Question 7

What are the statistics we can directly measure for the Cobb-Douglas formula?

Answer 7

Y, K, L

Question 8

What measure cannot be directly measured for the Cobb-Douglas formula?

Answer 8

A (Total factor productivity)

Question 9

When comparing between Ireland and Haiti what is something significant about the long run investment ratio?

Answer 9

Haiti has much higher investment ratio than Ireland

however…

Ireland displays a much higher GDP growth rate so there must be other factors and not solely the investment ratio

Question 10

Can TFP be negative?

Answer 10

Yes

Question 11

TFP is important for GDP growth but what’s the highest percentage that has been statistically proven?

Answer 11

40% (US)

Question 12

What is significant about TFP (A)?

Answer 12

is a fraction of GDP that cannot be explained by K and L, it is directly unobservable

Question 13

What is the Solow Growth Model equation?

Answer 13

k = K/L

Question 14

Describe how depreciation and population growth affect the Solow Growth model.

Answer 14

Depreciation reduces the total capital per woker

Population growth adds more people sharing the same capital, making each capital per worker smaller