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Sem 4 > Macro 4 > Flashcards

Macro 4 Flashcards

1
Q

Stylized facts of industrialized economies

A
  1. The ratio of capital to output has been constant (K/Y = constant in the LR).
  2. Capital per worker has grown at a sustained rate (K/L > 0).
    β†’ (1+2): output per worker has grown at a sustained rate ((K/L)/(Y/L)).
    β†’ Numerator & denominator grow equally.
  3. Capital and labour have captured stable shares of national income.
  4. (2+3): wages have grown at a sustained rate.
  5. (1+3): the real interest rate has been stable.
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2
Q

What are the 5 characteristics of physical capital?

A

It is productive
Can be produced
Is rival in use
Earns a return
Depriciates

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3
Q

What are the two assumptions of the basic Solow Model?

A

Constant returns to scale (for any Lambda>0)
Diminishing marginal returns

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4
Q

Cobb-Douglas Function & Properties

A

Y = K^a L^b. (b = 1-a)

Constant elasticity of output wrt each factor of production
Constant factor income shares

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5
Q

What does one get as w and r for a profit maximising firm with the Solow model and a Cobb-Douglas function?

A

w = BetaY/L
r = AlphaY/K

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6
Q

What is the formula for capital accumulation?

A

K(t) = sY(t) - 𝜹K(t)

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7
Q

basic solow, what is the formula for k*?

A

k* = (s/n+𝜹)**1/1-alpha

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8
Q

basic solow y* ?

A

k*^a

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9
Q

Increase from s to s’

A

higher y* and k*

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10
Q

Increase from n to n’

A

lower y* and k*

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11
Q

Basic solow, Is there growth in steady state?

A

Not per capita growth, only absolute growth.
(population grows at n)

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12
Q

What does the average level of human capital determine?

A

How much a worker can produce given the level of physical capital per worker

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13
Q

What is human capital a combination of?

A

Health and education

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14
Q

What are wages a combination of?

A

The return to raw labour and human capital

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15
Q

What is used to calculate average human capital? How is it expressed as a formula?

A

The wage premium of education
h = e**(return of additional year of education * years of education)

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16
Q

What is the economic rationale of the Mincer specification?

A

More schooling leads to higher wages, aka more schooling is equivalent to more quality adjusted labour)

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17
Q

Exo. Technological Progress in Solow

A

Y = K^a(AL)^1-a. and A is exogenous and grows costant rate g

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18
Q

Capital accumulation in efficiency terms

A

.~k = s~y - (n+g+delta)~k

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19
Q

Steady state .~k=0 so ~k* = ?

A

~k* = (s/n+𝜹+g)**1/1-alpha

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20
Q

Exo Tech Solow, k and y growth ?

A

Both grow at tech progress = g

In steady state growth rate unaffected by savings or else

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21
Q

Exo Tech Solow, permanent increase in s effect on growth y ?

A

Leads to a temporary increase in growth y and then gradually returns to g; y itself is not immidiately impacted but it will have a permanent higher level

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22
Q

Exo Tech Solow, drop in g leads to ?

A

Immidiate drop in growth y pc capita but increase in y efficiency terms

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23
Q

Returns to education

A

Returns to schooling are not uniform : weakly decreasing marginal return to education

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24
Q

human capital

A

H = hL
(where h is the mincer thing h = e^( πœ“*u)

u average years of schooling, psi return to schooling

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25
Q

Long run steady state with e^( πœ“*u)

A

Nothing changes in efficiency terms (we divide by AH), but in pc terms we need to multiply everythiing by e^( πœ“*u)

Remeber e^( πœ“*u) is a costant

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26
Q

Why Productivity?

A

Countries also differ in how effective they are at combining factors (physical capital,labor,human capital)

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27
Q

Difference in productivity levels

A

output = [productivity] * [ factors of production]
Y = [ A^1-a ]* [K^a * (hL)^1-a]

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28
Q

Do we observe variation in productivity levels across countries ?

A

yes

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29
Q

Developement Accounting Formula

A

π‘Ÿπ‘Žπ‘‘π‘–π‘œ π‘œπ‘“ π‘π‘Ÿπ‘œπ‘‘π‘’π‘π‘‘π‘–π‘£π‘–π‘‘π‘¦ = π‘Ÿπ‘Žπ‘‘π‘–π‘œ π‘œπ‘“ π‘œπ‘’π‘‘π‘π‘’π‘‘ / π‘Ÿπ‘Žπ‘‘π‘–π‘œ π‘œπ‘“ π‘“π‘Žπ‘π‘‘π‘œπ‘Ÿπ‘  π‘œπ‘“ π‘π‘Ÿπ‘œπ‘‘π‘’π‘π‘‘π‘–π‘œπ‘›

Issue : mismeasurement in production fact ratio –> leads to mism. in producitivty ratio

main message : diff in output pc not 1-to-1 related to diff in fact ratio

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30
Q

Growth Accounting formula

A

π‘π‘Ÿπ‘œπ‘‘π‘’π‘π‘‘π‘–π‘£π‘–π‘‘π‘¦ π‘”π‘Ÿπ‘œπ‘€π‘‘β„Ž = π‘œπ‘’π‘‘π‘π‘’π‘‘ π‘”π‘Ÿπ‘œπ‘€π‘‘β„Ž βˆ’ π‘“π‘Žπ‘π‘‘π‘œπ‘Ÿπ‘  π‘”π‘Ÿπ‘œπ‘€π‘‘β„Ž

same mismeasurement issues

productivity growth accounts for an important [art of overall growth

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31
Q

Convergence theory ?

A

Rich and poor tend to converge in terms of income per capita

Inconsistent with evidence

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32
Q

Prediction of convergence within the model

A

The model does not predict a negative relation between GDP and growth rate, instead the opposite a ** positive relation**

Per type of country we see negative relation (the ones with low s)

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33
Q

Absolute convergence hypothesis

A

There is a negative relationship between growth rate of y and y itself

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34
Q

Conditional convergence

A

Solow model does not predict absolute convergence, it instead predicts country-specific convergence

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35
Q

Conditional convergence within the model

A

the growth rate depends on how far a country is from its own steady state (the further below, the higher the growth rate)

Empirical evidence lends support to this hypothesis

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36
Q

What causes technological progress?

A

Innovation: new ideas!

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37
Q

nature of ideas

A

Disembodied: easy to transfer/ hard to protect
Nonrivarly –> high cost of creation & low cost of reproduction
Varying level of excludability : ploicy and institutions (patetns, subsidies protection)

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38
Q

Invest in R&D ?

A
  • Advantage of creation
  • market size
  • duration of advantage
  • uncertainty
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39
Q

Romer Model Endogenous Tech Progress

A

Advanced economies tech progress drvien by R&D, sotto A(t) puntino
𝐴 (𝑑) = πœƒπΏ(𝑑)^πœ† * 𝐴(t)^πœ™
πœƒ > 0; πœ† ∈ (0,1) ; πœ™< 1

40
Q

What is πœƒ and La in romer model

A

Productivity parameter, share of workers in R&D

41
Q

πœ† in romer model

A

Duplication of efforts, stepping on toes effect.
The higher the better, researchers are getting in their way less

42
Q

πœ™ in romer model

A

Effect of current tech/ideas on productiivty of researchers.
**knolwewdge spillovers:
* Fishing out, harder to come with something out after everything is discovered
* Standing on shoulder, previous tech helps creating new tech

Fishing out dominates πœ™<0 ; Standing on shoulders dominates πœ™ (0,1)

43
Q

labor allocation

A
  • Production of goods (workers): 𝐿y
  • Creation of ideas (researchers): 𝐿a
44
Q

romer model gA

A

gA = πœƒπΏa(𝑑)^πœ† / 𝐴(t)^1-πœ™

45
Q

growth in steady state ?

A

same as in solow gy = gk = gA

46
Q

gA costant in steady state (BGP)

A

growth of gA=0
gA* = πœ†n / 1-πœ™

47
Q

Innovation policy

A

Increase in Sr affects long run level of y (y*)
however no effect on growth rate of y

Also ambigous effect:
higer sr –> higer R&D effot –> higer A
higer sr –> less labor in production of goods

48
Q

Malthusian dynamics

A

increase in living standards –> increase in population –> facilitating innovation –> sustained growth –> sustained improvements in living standards

49
Q

before 1800

A

low income and low growth

50
Q

after 1800

A

high income and high growth

slow down in fertility in modern times

51
Q

Malthusian model

A

Y = BX^Ξ²L^(1-Ξ²)

X fixed factor land
B level of tech

income pc y = B*( X/L)^Ξ²

52
Q

population dynamics

A

gL = πœƒ(y- c_ )

c_ subsistence consumption

53
Q

Steady state in Malthusian model

A

Stagnant population gL= 0
Stagnant income pc gy = 0 , y* = c_

Explains stagnant living standards pre-1800

54
Q

one-off tech increase in Malthusian model

A

Shifts curve to right (B + Ξ”B) , higher L*
y* = c_

55
Q

Continuous tech progress (Exogenous)

A

recall y=B*( X/L)^Ξ²
gy= gB + Ξ²(gX - gL) = gB - Ξ²gL
gB = Ξ²g

gy = Ξ²(g - gL)

56
Q

Steady state with continous tech progress

A

gL* = g >0 , pop. will grow in steady state
gy* = 0 , y* = g/πœƒ + c_ no sustained growth in income pc

57
Q

Continuous tech progress (Endogenous)

A

gB comes from the Romer model
gB = v(sr*𝐿)^πœ† / B^1-πœ™

58
Q

Kremer Model

A

The rate of pop growth is increasing in pop size
gB = L (recall gB = gΞ²)
gL = g = L / Ξ²

Virtous cycle gL >0 –> L increases –> gB increases –> gL >0 –> L increases

59
Q

Empirical evidence kremer model

A

In most recent years ever increasing gL and gB not observed

60
Q

Refined population dynamics

A

gL peaks at some value of y

61
Q

Transition to sustained growth

A
  • escape trap : shock shifting y (black death didn’t work implausible somenthing else will)
  • eliminate trap : shift g super up , pop growth settles in the long run at n*
62
Q

Post malthusian regime

A

gB = πœ†n* / 1-πœ™

gy = gB - Ξ²n*

Ξ² use of land in production on, less of it drags on growth, evidence declining of Ξ² (land less important for production) -> easier to escape Malthusian trap

63
Q

Parents utility maxmiziers care about ?

A
  • Quantity of children: number
  • Quality of children: education
64
Q

Number of offspring (m) depends on ?

A

Positively on resources spent on having children (M)
Negatively on income pr (y), opp. cost when rich (parents time more valuable)

m = nM/y

n>0 parameter

65
Q

schooling per child (u)

A

u = E + u_

E resources spent on education
u_ sum of basic skills

66
Q

Budget constrain in children

A

y = c_ + M + E

67
Q

Utility of parents V

A

V = ln(m) + ln(u)

than you substitute m and u , and max respect to E

68
Q

pop growth economic dynamics

A

It is equal to generational growth, children that come from 2 parents n = (m -2)/2

69
Q

population dynamics driven by m

A

m increases with y, higher income frees resources –> more kids , if income y too high m decreases, parents spend in education

70
Q

Danger of nonrenewable resources

A

they get depleted upon use and do not regenerate, tech progress fundamental for sustained growth it needs to compensate for growing pop and declining resources

71
Q

the role of reserves

A

they get depleted as energy is used,
a fraction of these is continuosly used to, they decline at rate Se

72
Q

Growth rate y with non ren. resources

A

higer n –> lower gy (more people less E)
higher Se –> lower gy (resources depletion drags growth)

73
Q

factor prices and scarcity

A

as resources get depleted relative price should increase

No evidence showing this trend

74
Q

Problematic underlying assumptions

A
  1. costant decline of reserves
    (could be undeveloped resources transformed into developed reserves)
  2. Costant factor income share of resources
75
Q

CES costant elasticity of substitution production function

A

F(K,E) = (K^rho + (Be*E)^rho)^1/rho

76
Q

what is rho (rho <1)

A

determines the elasticity of substitution (sigma) between capital and energy . sigma = 1/ 1- rho

77
Q

K and E substitute when ?

A

sigma > 1 , 0 < rho < 1

78
Q

K and E complements when ?

A

sigma <1 , rho <0

79
Q

evidence on factor shares

A

declining E/Y

80
Q

high elasticity of substitution

A

sigma >1 , 0<rho<1
Energy can be easily substituted by capital

Pronlem, if E goes to 0, economy can still produce K

81
Q

fast (energy-saving) tech. progress

A

Low elasticity of substitution, sigma <1 , rho<0, factor shares decline if there is sufficient growth in tech

82
Q

economic impact on enviroment

A

emissions of GHG , climate change, damages , lower output, lower consumption

83
Q

enviroment in utility function V

A

V = u(Ct) + theta * v(Rt+1)

Positively depend on Consumption and remaninig resoruces

84
Q

Trade-off

A

Higher consumption requires more resources use

85
Q

Social infrastructure and performance

A

Policies :Taxes, subsidies, regulation
Institutions: Property protection, polictical stability, culture ecc Favor or not R&D and progress

86
Q

Investment decsions

A

Value of business Pi > Fixed cost F

87
Q

Determinants of F

A

Red tape (excessive regulation)
Corruption

88
Q

Determinants of Pi

A

Market size
Diversion of firms resources
Political stability

89
Q

resource allocation

A

economic performance thorugh correct allocation , which projects firms to fund, provision of public good.
Misallocation -> rent-seking, idle factors, policy distortions , frictions ecc

90
Q

Historical events source of exogenous variation in institutions

A

Acemoglu Johnson robinson paper , on european settleres mortality the change in instutitions and developement of country

91
Q

Dell(2010), PerΓΉ mining Mita

A

Peorple forced to go mining, now the same areas have low household consumption and stunted growth

92
Q

Dincecco & Katz(2014)

A

Fiscal centralization saw higher growth than fragmented regimes

93
Q

Economic rational

A

Fiscal centralization : Reduce free-rding, increase extractive capacity.
Limited gov: prevent wasteful spending, better provision of public services

94
Q

Acemoglu et al. (2019) from non democracy to democracy

A

Transitioning to democracy increases 20percent GDP per capita

95
Q

Empirical challenges

A
  • Measurements errors in democracy indices
  • Unobserved differences betweeen democracies and nondemocracies (cultural, institutional ecc ) can influence GDP
  • GDP dynamics, democractization precedeed by downturn : effect bieased by recovery

Sem 4 (5 decks)

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