Long run economic growth Flashcards
In Pakistan, 85% of people live on:
Less than $2 a day
The underlying view is that long run economic growth:
Will lift countries out of mass poverty
Why does growth matter?
- Anything that affects LR growth has a huge effect on LR living standards
- Small growth rate over time leads to compounding = high total growth rate
How does the IMF or world Bank distribute votes?
By economic size
Political influence is related to:
Economic power
The Solow model looks at:
Determinents of economic growth and the standard of living in the long run
How is the Solow model different?
- K no longer fixed
- L no longer fixed
- Consumption function is simpler
- No G or T
Revise production function on LREG lecture slide 13
x
Under the Solow model, anything that isn’t consumed is:
Invested via the savings mechanism
Under Solow, is s an exogenous or endogenous parameter?
Exogenous
Investment replaces:
Capital
Investment makes the capital stock:
Bigger
Depreciation makes the capital stock:
Smaller
Change in capital stock =
Investment (I) - Depreciation (δk)
What is δ?
“Delta” - rate of depreciation
If investment is just enough to cover depreciation, then:
Capital per worker will remain constant
High investment is associated with:
High income per person
What is the law of motion?
change in k = sf(k)-δk
What is the golden rule level of capital?
The steady state value of k that maximises consumption
What is the steady state?
Capital per worker remains constant
Under the steady state, investment is just enough to:
Cover consumption
k* is called the:
Steady state capital stock
The constant level of capital under the steady state is denoted by:
k*
Achieving the golden rule requires that policymakers adjust:
s
What is break-even investment?
The amount of investment necessary to keep k constant
What is the formula for break even investment?
(δ+n) k
n = interest rate
Malthusian model predicts that earth’s population will:
Outstrip the Earth’s ability to produce food
The Kremerian model says that population growth contributes to:
Economic growth
The Kremerian model says more people =
More geniuses, scientists & engineers, so faster technological progress
