W10P1 - Notebooklm Flashcards
According to the lecture, what makes long-term economic growth particularly important for an economy?
It is ultimately what matters for an economy besides the equality of its society.
Illustrate with an example the long-term impact of small differences in economic growth rates.
A country growing at 4% will be 50% richer than a country growing at 2% after 20 years, and 170% richer after 50 years.
What is the name of the main model of long-term economic growth that will be discussed in the lecture
The Solow growth model (or sometimes called the Solow-Swan model).
What are the key factors that the Solow growth model examines in relation to economic growth?
Capital, labour, and productivity (specifically Total Factor Productivity or TFP).
Define the notation used for capital (K) and labour (L) in the context of this week’s lecture.
K represents capital, which includes machines, factories, and PCs. L represents labour, often considered as the total population in this model assuming full employment.
What trend can be observed in real GDP for many countries over the long term (e.g., the last 200-300 years)?
Even after accounting for inflation (looking at real GDP), countries have generally shown growth over time.
Provide an example of how the relative economic standing of countries can change significantly over long periods.
Japan was relatively poor compared to the UK 100-150 years ago but has since grown significantly faster and caught up. Argentina was as rich as the UK at the beginning of the 20th century but now has significantly lower growth rates. South Korea and Singapore were much poorer than the UK in the 1950s but are now as rich or even richer.
What are “Kaldor’s stylized facts” in the context of long-term economic growth?
They are empirical observations about long-term economic growth that a successful model should be able to replicate.
List some of Kaldor’s stylized facts as presented in the lecture.
- The capital to labour ratio (K/L) grows over time.
- The output to labour ratio (Y/L) grows over time.
- The capital to output ratio (K/Y) is relatively steady over time.
- Real wages are increasing.
- Profit rates or the return on capital are relatively constant.
- The shares of capital (approximately 1/3) and labour (approximately 2/3) in total income are relatively constant.
What is the observed trend in the capital to labour ratio for countries like the UK, US, Germany, and Japan over the last 70 years?
It has been increasing.
What has been the trend in the output to labour ratio for the UK, US, Germany, and Japan over the last 70 years?
It has been increasing.
What observation can be made about the capital to output ratio (K/Y) over long time periods for countries like the UK, US, Germany, and Japan?
It appears to be relatively constant, possibly around an average of 4 or 5.
What is a “striking finding” regarding the shares of capital and labour in total income in the UK and US over the last 100 years?
Both countries show a similar pattern where about 1/3 of total income goes to capital and about 2/3 goes to labour.
What is the intended purpose of introducing the Solow model after discussing Kaldor’s stylized facts?
To build a model that can attempt to replicate these empirical patterns of long-term economic growth.
