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EC1B3 > Week 5: Growth Accounting > Flashcards

Week 5: Growth Accounting Flashcards

1
Q

Growth accounting

A

determines the sources of growth in an economy and how they may change over time

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2
Q

What explains the difference in TFP levels? (2)

A
  • Difference in capital per person explains about 1/3 of difference
  • TFP explains remaining 2/3
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3
Q

Why are rich countries rich? (2)

A
  • They have more capital per person

- They use labour and capital more efficiently – more important

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4
Q

Applied growth rate rules to production function (new equation)

A
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5
Q

Adjust growth rates by labour hours (new equation)

A
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6
Q

What is TFP growth also known as?

A

The residual

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7
Q

Human Capital

A

Stock of skills that individuals accumulate to make them more productive – education and training

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8
Q

What are returns to education?

A

value of the increase in wages from additional schooling

Increased productivity via investment in human capital

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9
Q

What type of investment in education can increase productivity?

A

investment in state schools, subsidised loans for university and college

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10
Q

Trade -off of Investment in Human Capital

A

spending a year in school requires sacrificing a years wage now to have higher wages later

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11
Q

How is health and productivity linked?

A

Healthier workers = more productive

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12
Q

S Koreas calorie intake fact

A

S Korea – over 1962 – 95 caloric consumption increased by 44% and economic growth was spectacular

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13
Q

Why are institutions in place?

A

To foster human capital and technological growth

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14
Q

Examples of institutions

A

– property rights

  • the rule of law
  • gov systems
  • contact enforcement
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15
Q

Property rights

A

have the ability to exercise authority over the resources they own e.g. rule of law, expropriation

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16
Q

Why are property rights needed?

A

Markets cannot work is there is no respect for property rights

17
Q

What are the results of a corrupt government?

A

Less investment (including from abroad) and economy is less efficient - results in lower living standards

18
Q

Misallocation of Resources

A

a situation in which capital and labour are poorly distributed so that less productive firms receive a larger share of capital and labour than they should according to level of productivity

19
Q

3 Categories of Capital

A
  1. Private capital stock
  2. Public infrastructure
  3. Human capital
20
Q

2 viewpoints to allocate investment in economy

A
  1. equalise tax treatment of all types of capital in all industries and let market allocate investment to the type with highest marginal product
  2. Industry policy
21
Q

Industrial Policy

A

gov actively encourage investment in capital of certain types or certain industries because it may have pos externalities that private investors don’t consider

22
Q

Issues with industrial policy

A
  • Government may now have the ability to ‘pick winners’ (choose industries with the highest return to capital)
  • Politics rather than economics may influence which industries get preferential treatment
23
Q

Why is establishing the right institutions important?

A

Important for ensuring resources are allocated to best use

24
Q

Methods to encourage technological progress

A

Patent laws: encourage innovation by granting temporary monopolies
Tax incentives for R&D
Grants to fund research un universities

25
Q

Charter Cities

A

where an economy agrees to set the rules by which a new city is administrated

26
Q

Radical Changes in Demographic Composition of Society - Equation

A
27
Q

Radical Changes in Demographic Composition of Society - FOC Equation and relationship

A
28
Q

Structural Transformation

A

the transition of an economy from low productivity and labour-intensive economic activities to higher productivity and skill intensive activities

29
Q

What happens in sectors when economy develops?

A

As economy develops, employment and value added:

  • In the agricultural sector decline
  • In manufacturing, first increase then decline
  • In services increase
30
Q

What happens to sectoral productivity growth when economy develops?

A
  • Higher in agricultural sector
  • Medium in manufacturing
  • Lowest in services
31
Q

Production Function for Growth Accounting

A
32
Q

What does A stand for in the production function for Romer Model?

A

Accumulation/stock of ideas

33
Q

What does the negative relationship between education and fertility?

A

The higher the education, the lower the number of desired kids

34
Q

Why does sectoral composition change with development? Model

A
35
Q

Why does sectoral composition change with development? Model in equilibrium

A
36
Q

Why does sectoral composition change with development? FOC applied

A
37
Q

What happens in sectoral composition change with development when in equilibrium?

A

must be that production is fully consumed

38
Q

How to calculate TFP?

A

Use the cobb-douglas production function and solve for A

39
Q

How to calculate growth rates?

A

(final value - initial value)/final value

x100 for %

EC1B3 (10 decks)

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