Week 4 - The Productivity Slowdown

Question 1

What is the productivity puzzle generally?

Answer 1

The productivity puzzle is the fact that there has been a remarkable slowdown in the rate of productivity in the last few decades which has been common across many different countries and regions without a clear explanation.

Question 2

What is Total Factor Productivity equal to?

Answer 2

At = Yt / Kt^a Lt^1-a

Question 3

State the 3 possible explanations of the productivity slowdown

Answer 3

1. Mis-measurement
2. Declining inputs in research
3. Declining research productivity

Question 4

Explain the mismeasurement hypothesis and comment on whether this is consistent with the data?

Answer 4

• The mismeasurement hypothesis says there is some difficulty in measuring the components that affect productivity.
• Higher prices could be because of higher quality, however, real GDP takes this as inflation and doesn’t take this into account, we want to determine how much of the price increase is due to higher quality and how much is due to higher inflation as Yt which measures productivity is real GDP
• Free internet services such as the internet Facebook, Instagram gives some welfare which is missed by productivity statistics, however, the gap in productivity is too large to be accounted for the missed statistics of the productivity statistics.

Question 5

Explain the declining inputs in research hypothesis for the slowdown of productivity

Answer 5

• Input of labor in research has been increasing, more researchers than before, but productivity has been slowing down which shows that this cannot be why productivity growth has fallen.

Question 6

What is TFP growth in the Romer Idea model equal to?

Answer 6

• Change At+1 / Change in A = z bar Lat
• Z bar is the productivity of the ideas production sector
• Lat is the the labor which dedicates themselves to research

Question 7

Explain the declining research productivity hypothesis as a reason for the fall in productivity

Answer 7

• Suggests researchers were more productive in the past than they are now and therefore productivity has fallen over time.

Question 8

What is research productivity Z bar equal t?

Answer 8

• Z bar = Lat / Change in At+1 / At