Week 2 Flashcards
‘rule of 70’
even small differences in growth rates are magnified over time
doubling time for a variable =
sources of long run growth
- increase in
- productivity
- physical capital
- human capital
- technological progress
(labor) productivity
output per worker
physical capital
man-made resources
increase in human capital
improvements in labor created by education and knowledge of workforce
technological progress
advance in technical means of production of g+s
aggregate production function
hypothetical function that shows how productivity depends on the
- quantity of physical capital per worker
- quantity of human capital per worker
- state of technology
aggregate production function equation (GDP per worker)
diminishing returns to physical capital
holding
- amount of human capital per worker
- state of technology
fixed, each successive increase in quantity of physical capital per worker leads to smaller increase in productivity
aggregate production function graph
why might diminishing returns to physical capital disappear?
if we don’t hold ceteris paribus and there is an increase in human capital per worker and/or technology
APF after increase in total factor productivity
growth accounting
estimates of contribution of each major factor in APF to economic growth
total factor productivity
amount of output that can be produced with given amount of factor inputs
what happens when total factor productivity increases?
economy can produce more output with same quantity of physical and human capital, and labor
What does Robert Gordon argue?
new information technology won’t create as much growth as:
- electricity
- internal combustion engine
- running water and central heating
- modern chemistry
- mass communication, movies, telephones
Robert Gordon graph
why do growth rates differ between countries?
- savings and investment spending
- education
- research and development
research and development
spending to create and implement new technologies
factor behind China’s LR growth?
increase in human capital as increase numbers of years of education per person
what is the role of the government in promoting economic growth?
- government policies
- subsidizing
- infrastructure
- education
- research and development
- maintaining well functioning financial system
- subsidizing
- protect property rights
- political stability and good governance
infrastructure
- roads, powerlines, etc.
- underpinnings for econ activity
why did the UK fall behind Germany and the US growth wise?
barriers to education
what caused East Asia’s miracle?
- very high savings rates that allowed businesses to borrow and add more physical capital per worker
- very good basic education
- substantial technological progress
what is holding Latin American back?
- government actions leading to high inflation eroding savings
- lack of emphasis on education
- political instability
what’s holding Africa back?
- government corruption
- civil wars and political instability
- unfavorable geography
convergence hypothesis
international differences in GDP per capita tend to narrow over time
reality of convergence hypothesis
sustainable LR economic growth
LR growth that continues in face of limited supply of natural resources and impact of growth on enviornment
important questions to determine sustainable growth
- how large are supplies of natural resources?
- how effective will tech be at finding alternative natural resources?
- can LR economic growth continue in face of resource scarcity?
market-based incentives to tackle climate change
- carbon tax (tax per unit of carbon emitted)
- cap and trade (total amount of emissions capped, producers must be licenses to emit)
