Readings Macro

Question 1

Productivity paradox

Answer 1

Solow computer paradox:

«You can see the computer age everywhere but in the productivity statistics»

—> slowdown in productivity growth in the United States in the 1970s and 80s despite rapid development in the field of information technology (IT) over the same period.

Question 2

Digital Disruption of productivity (GDP measurement )

Answer 2

GDP isn’t a reliable measure of Revenue. A Lot of things are not considered:

• environmental cost
• unpaid work at home
• sharing economy activities
• some digital activities:

—> online activities funded by ad are not «free»
—> a lot of services are rising online, creating value for users (sometimes with money transfer sometimes not). Even when there is money transfer, the transaction may imply non monetary benefit and this «consumer surplus» is never captured.

—> digitalization has directly reduced GDP.

-no impact of the improvement of quality while the price is the same (laptops for example)

Question 3

Futur of labour market :

Answer 3

-productivity paradox : normal because technological investments take time to pay off.

Pessimists:
-technological advances: AI will replace humans in a lot of job task and the total FACTOR productivity will decrease (expl paradox)
-technology optimists: a réorganisation of jobs, and human will be needed in both low and high skilled jobs. Robots may replace some job but they will also create others.
—> balance btw innovation and human capital

But :
Much of the workforce lacks the right skills to complete the new economy task

Question 4

3 main channels through which demography influence economy:

Answer 4

• changes in the size of the work force
• changes in the productivity growth
• changes in the pattern of savings

Question 5

Demography :

Answer 5

In the 20th century : the planet’s population doubled

—> larger portion of old people means slower growth and less savings —> higher interest rates

Question 6

Old age dependency ratio

Answer 6

Ratio of old people to those of the working age

By 2035, more than 13% of the population will be above 65. The old dependency ratio will grow even faster. Big exceptions (Asia and Africa )

Question 7

Digital area caracterized by:

Answer 7

• low productivity
• aging population
• secular stagnation

Question 8

Demography, growth and inequality:

Answer 8

• less savings —> higher interest rates and falling asset prices.
• shrinking population —> less investment and then persistant stagnation
• less workforce means less output unless productivity rises to compensate
• role of education: more educated périple are willing to work over 60´s (less skilled people are harder and less paid jobs —> cognitive adjustement dependency ratio
• impact on inequality : education determine how people save. Private pensions funds allow order workers to be richer, since usually the richest are the most educated, the inequality will rise again (Piketty)

Question 9

Secular stagnation : definition

Answer 9

Since the subprime crisis.
It is caractériséd by an imbalance resulting from an increasing propensity to save and a decreasing propensity to invest.

Question 10

Secular stagnation (implications)

Answer 10

It leads to a demand drop, followed by a decrease in growth, inflation and consequently interest rates

Question 11

Solution to secular stagnation :

Answer 11

Fiscal policy : an expansionary fiscal policy (budgétaire)