W10P5 - Notebooklm Flashcards
What are the main sources of economic growth discussed in the lecture?
The main sources of economic growth are capital, labour, and Total Factor Productivity (TFP).
Why is it important for policymakers to understand the different sources of economic growth?
Understanding the contributions of capital, labour, and TFP to GDP growth helps policymakers identify the underlying problems (e.g., low capital growth or low productivity growth) and design appropriate policies to address them.
If Y = X * Z, what is the change in Y (dY)?
dY = dX * Z + dZ * X.
If y = f(x), what is the change in y (dy)?
dy = f’(x) * dx, where f’(x) is the derivative of f with respect to x.
If g = g(x, y), what is the change in g (dg)?
dg = (∂g/∂x) * dx + (∂g/∂y) * dy, where ∂g/∂x is the partial derivative of g with respect to x, and ∂g/∂y is the partial derivative of g with respect to y.
In the production function, what does dy represent?
dy represents the change in output.
According to the lecture, what is the formula for the change in output (dy)?
dy = dA * f(K, L) + A * d(f(K, L)), where A is productivity and f(K, L) is the production function of capital (K) and labour (L).
How is the change in the production function d(f(K, L)) expressed in terms of capital and labour?
d(f(K, L)) = FK * dK + FL * dL, where FK is the derivative of the production function with respect to capital, and FL is the derivative of the production function with respect to labour.
What do FK and FL represent in economic terms?
FK represents the marginal product of capital, and FL represents the marginal product of labour.
How is the gross rate (percentage change) in output typically calculated?
The gross rate in output is calculated by dividing the change in output (dy) by the level of output (y or A * f(K, L)).
What is the relationship between the return on capital (interest rate, R) and the marginal product of capital (FK)?
R is related to A * FK.
What is the relationship between the wage rate (W) and the marginal product of labour (FL)?
W is related to A * FL.
What is the capital share (SK)?
The capital share (SK) is the return on capital times the amount of capital, relative to total income (R * K / Y). It is empirically observed to be around 1/3 in many economies.
What is the labour share (SL)?
The labour share (SL) is the total wage sum relative to total income (W * L / Y). It is empirically observed to be around 2/3 in many economies. The lecture also notes that SL can be represented as 1 - SK.
According to the lecture, what is the equation for the growth rate in GDP?
The growth rate in GDP (dy/y or dA/A) is approximately equal to the growth rate in TFP (dA/A) plus the growth rate in capital (dK/K) weighted by the capital share (SK), plus the growth rate in labour (dL/L) weighted by the labour share (SL): dy/y ≈ dA/A + SK(dK/K) + SL(dL/L).
What is the Solow residual?
The Solow residual is the growth rate in TFP (dA/A). It represents the portion of output growth that cannot be explained by the growth in capital and labour. It is calculated as: dA/A ≈ dy/y - SK(dK/K) - SL(dL/L).
What general trend has been observed in the average amount of hours worked per worker across several countries over the last 70 years?
There has been a declining trend in the average amount of hours worked per worker in most countries.
What is a key weakness of the Solow model in explaining long-run economic growth?
The Solow model relies on exogenous growth in productivity, meaning productivity growth is not explained within the model itself.
What are New Growth Theories or Endogenous Growth Theories?
These are theories that attempt to address the weakness of the Solow model by trying to determine productivity growth endogenously (within the model).
What is the key characteristic of the production function in the AK model?
The production function in the AK model assumes constant returns to capital, which can be written as Y = AK or Y = A * Kα where α = 1.
What is a key implication of the AK model regarding economic growth and steady states?
The AK model suggests that sustained economic growth can occur without converging to a steady state.
What is a significant point of controversy regarding the AK model?
The AK model’s results heavily depend on the assumption that the exponent of capital (alpha) in the production function is exactly equal to one, which is a strong and often debated assumption.
Besides capital and labour, what other factors might influence economic growth that are often explored in more advanced growth models?
Other factors include human capital, technology adoption, firm creation and innovation, the rule of law, and democracy.
