Technological progress and human capital Flashcards
In the Solow model, production technology is held:
Constant
In the Solow model, income per capita is:
Constant in the steady state
What are some technological progress examples
- US farm sector productivity tripled from 1950 to 2009
- 361 million internet users in 2000 vs 2.4bn in 2011
What is E in the Solow model?
Labour efficiency
Technological progress is labour…
Augmenting
What does labour augmenting mean?
It increases labour efficiency
What is L x E?
Number of effective workers?
What is y?
Y/LE
What is Y/LE?
Output per effective worker
What is k?
K/LE
What is K/LE?
Capital per effective worker
What type of growth does Solow’s model steady state show?
Balanced
Solow’s model predicts that Poor countries should grow __ than rich ones
Faster
What are steady states determined by?
- Saving
- Population
- Growth
- Education
What are two reasons why income per capita is lower in some countries than others?
- Differences in capital per worker
- Differences in the efficiency of production
Production efficiency encourages:
Capital accumulation
Capital accumulation has externalities that raise:
Efficiency
Since Adam Smith, economists have argued that free trade can increase:
Production efficiency and living standards
What is one reason countries trade less:
- They’re further from other nations
- They’re landlocked
What are two policies to increase the savings rate?
- Reduce the government budget deficit
- Increase incentives for private saving
What are some incentives for private saving?
- 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
What are the three categories of Capital?
- Private capital stock
- Public infrastructure
- Human capital
What are the two viewpoints on allocation of investment in an economy?
- Equal tax treatment for all types of capital
- Industrial policy
What is industrial policy?
Govt actively encourages investment in certain types of capital because of positive externalities
What are three institutions that ensure resources are allocated to their best use?
- Legal institutions
- Capital markets
- Corruption free government
What are 4 ways the government can encourage technological progress?
- Patent laws
- Tax incentives for R&D
- Grants for research at universities
- Industrial policy
Under the Solow model, sustained growth in living standards is due to:
-Technological progress
Under the Solow model, the rate of tech progress is:
Exogenous
What are the two sectors in a two sector model?
- Manufacturing
- Research
Why do firms profit from research?
- New inventions can be patented
- Advantage of being first firm on the market with a new product
Who coined the term “creative destruction”
Schumpeter (1942)
