Technological progress and human capital

Question 1

In the Solow model, production technology is held:

Answer 1

Constant

Question 2

In the Solow model, income per capita is:

Answer 2

Constant in the steady state

Question 3

What are some technological progress examples

Answer 3

• US farm sector productivity tripled from 1950 to 2009

- 361 million internet users in 2000 vs 2.4bn in 2011

Question 4

What is E in the Solow model?

Answer 4

Labour efficiency

Question 5

Technological progress is labour…

Answer 5

Augmenting

Question 6

What does labour augmenting mean?

Answer 6

It increases labour efficiency

Question 7

What is L x E?

Answer 7

Number of effective workers?

Question 8

What is y?

Answer 8

Y/LE

Question 9

What is Y/LE?

Answer 9

Output per effective worker

Question 10

What is k?

Answer 10

K/LE

Question 11

What is K/LE?

Answer 11

Capital per effective worker

Question 12

What type of growth does Solow’s model steady state show?

Answer 12

Balanced

Question 13

Solow’s model predicts that Poor countries should grow __ than rich ones

Answer 13

Faster

Question 14

What are steady states determined by?

Answer 14

• Saving
• Population
• Growth
• Education

Question 15

What are two reasons why income per capita is lower in some countries than others?

Answer 15

• Differences in capital per worker

- Differences in the efficiency of production

Question 16

Production efficiency encourages:

Answer 16

Capital accumulation

Question 17

Capital accumulation has externalities that raise:

Answer 17

Efficiency

Question 18

Since Adam Smith, economists have argued that free trade can increase:

Answer 18

Production efficiency and living standards

Question 19

What is one reason countries trade less:

Answer 19

• They’re further from other nations

- They’re landlocked

Question 20

What are two policies to increase the savings rate?

Answer 20

• Reduce the government budget deficit

- Increase incentives for private saving

Question 21

What are some incentives for private saving?

Answer 21

• Reduce capital gains corporate income and inheritance tax
• Replace income tax with consumption tax
• Expand tax incentives for savings through pension funds and ISA’s

Question 22

What are the three categories of Capital?

Answer 22

• Private capital stock
• Public infrastructure
• Human capital

Question 23

What are the two viewpoints on allocation of investment in an economy?

Answer 23

• Equal tax treatment for all types of capital

- Industrial policy

Question 24

What is industrial policy?

Answer 24

Govt actively encourages investment in certain types of capital because of positive externalities

Question 25

What are three institutions that ensure resources are allocated to their best use?

Answer 25

• Legal institutions
• Capital markets
• Corruption free government

Question 26

What are 4 ways the government can encourage technological progress?

Answer 26

• Patent laws
• Tax incentives for R&D
• Grants for research at universities
• Industrial policy

Question 27

Under the Solow model, sustained growth in living standards is due to:

Answer 27

-Technological progress

Question 28

Under the Solow model, the rate of tech progress is:

Answer 28

Exogenous

Question 29

What are the two sectors in a two sector model?

Answer 29

• Manufacturing

- Research

Question 30

Why do firms profit from research?

Answer 30

• New inventions can be patented

- Advantage of being first firm on the market with a new product

Question 31

Who coined the term “creative destruction”

Answer 31

Schumpeter (1942)