Technology Part 1

Question 1

What does state of technology mean?

Answer 1

Captures how the economy is organised, from the nature of instructions to the role of government

Question 2

Impact of improving technology on output per worker graphically…

Answer 2

• An improvement in technology pivots the production function outwards
• leading to an increase in output per worker for every given level of capital per worker

Question 3

How does technological progress enter the production function?

Answer 3

• Output dependent on capital (k), labour (n) and state of technology (a)
• Y = F(K,N,A)

Question 4

Give a more convenient form of the production function with technology.

Answer 4

Y = F(K, AN)

Question 5

Explain how technological progress is related to the number of workers.

Answer 5

Technological progress reduces the number of workers needed to achieve a given amount of output.

Question 6

Relation between output per effective worker and capital per effective worker:

Answer 6

Y/AN = F (K/AN, 1) = f(K/AN)
- Y/AN = output per effective worker
- K/AN = capital per effective worker

Question 7

Describe the effect of increases in capital per effective worker on the output per effective worker.

Answer 7

Leads to smaller and smaller increases in output per effective worker due to decreasing returns to capital

Question 8

Dynamics of output and capital per worker:

Answer 8

I = S = sY
- I = investment
- S = savings
- sY = saving rate

Question 9

What does I/AN = s(Y/AN) = sf(K/AN) tell us?

Answer 9

The relation between investment per effective worker and capital per effective worker.

Question 10

Given gA and gN, how does AN grow?

Answer 10

At rate (gA + gN), where both gA and gN > 0

Question 11

What is the investment needed to maintain a given level of K/AN.

Answer 11

• I = δK + (gA + gN) K = (δ + gA + gN) K

Question 12

Given (δ + gA + gN), what is the new required investment line?

Answer 12

I/AN = (δ + gA + gN) K / AN

Question 13

What happens on the required investment line?

Answer 13

Capital stock per effecttive worker is constant.

Question 14

What are the effects of an increase in savings rate on the level of steady state output per effective worker and capital per effective worker?

Answer 14

Leads to an increase in steady state levels of output per effective worker and capital per effective worker.