Topic 4 - Economic Growth Flashcards
Output per capita
GDP / population
- affects standard of living
Adjusted real GDP
measures of purchasing power across countries, also called purchasing power parity (PPP) numbers
Why GDP across countries cannot be adjusted using exchange rates
1) Exchange rates can vary a lot
2) The lower a country’s output per capita, the lower the prices of food and basic services in that country
Aggregate Production
- including properties
Y = F(z,K,N,H)
z: total factor productivity
K: physical capital
N: labor
H: human capital
- more input leads to more output
- diminishing marginal products of capital and efficiency inputs
- constant returns to scale
Cobb-Douglas specification of Aggregate Production
Physical Capital
Change over time:
- depreciation
- investment
- destruction
Mathematical:
Kt+1 = Kt + It - δKt
Labor
Change over time:
- population growth
- change in fraction of population employed
- change in average hours worked
Adjustment for quality: human capital
Human Capital
Change over time:
- education
- demographics
- food regime
Measurements:
- average educational attainment
- test scores
- education expenditures
Total Factor Productivity
Change over time:
- technological progress
- policy reform
Depends on:
- technology
- allocation of inputs
(within companies, across companies in the same sector, across sectors)
Measuring total factor productivity
Population growth
N’ = (1+n)N
Consumption-Savings behavior
(1-s)y
Future Capital
K’ = (1-δ)K + I
Fundamental Growth Equation
Steady State level of capital per worker
Steady State level of output per worker
