chapter 10

Question 1

rule of 72

Answer 1

72/growth rate= the time it will take for the underlying variable to double

Question 2

Benefits of economic growth

Answer 2

• rising avg living standards
• addressing poverty and inequality (although not really recently)

Question 3

Costs of economic growth

Answer 3

-forgone consumption
- social costs: obsolescence of workers’ skills

Question 4

Sources of econ growth

Answer 4

• growth in labour force
• growth in human capital
• growth in physical capital
• techno improvement

Question 5

Give the formula for private savings and for public savings

Answer 5

Private= Y*-T-C
public= T-G

Question 6

Give the formula for national savings

Answer 6

NS= Y*-C-G
So, increase in govt spending or consumption decreases national savings.
The supply curve for national savings and the investment demand curve make up the economy’s market for financial capital

Question 7

What does an excess supply of national savings do to the interest rate? What does an excess demand for investment do to the interest rate?

Answer 7

excess supply drives it down, the higher demand for bonds drive their prices up and their yields down
Exces demand for investment increases the supply of bonds, thus their price goes down since demand is less than supply, yields go up

Question 8

2 key assumptions of neoclassical growth

Answer 8

-Diminishing marginal returns when a single factor increases
- constant returns to scale when all increase together

Question 9

What does labour force growth alone lead to

Answer 9

All else fixed, it will lead to increases in GDP but an eventual decline in average material living standards

Question 10

Physical and human capital accumulation together, consequences on GDP and material living standards?

Answer 10

Capital accumulation such as this leads to improvement of material living standards, but because of diminishing marginal returns, these improvements are smaller with each additional increment of capital

Question 11

Balanced growth with technology constant’s effect on living standards and GDP

Answer 11

If capital and labour grow at the same rate, GDO will increase
BUt it won’t lead to increases in per capita output, so no improvement in material livings standards

Question 12

Explain the importance of techno change

Answer 12

• first, it is assumed exogenous
• new knowledge can contribute to the growth of potential output even with everything else constant

Question 13

What’s embodied technological change?

Answer 13

techno improvements are contained in the new capital goods

Question 14

How does solow estimate growth and what’s it called

Answer 14

• the solow residual
  It the part of growth that isn’t explained by capital accumulation or labour force growth

Question 15

Should workers be afraid of techno change?

Answer 15

• unfounded, no
• as long as labour markets adjust, the level of employment should stay the same
• that being said, the most adaptative workers are the ones for whom its the truest

Question 16

What do new economic growth theories state?

Answer 16

• technological change would in fact be endogenous to economic signal, responsive to the economy.
  occurs in response to
• learning by doing
• knowledge transfer
• market structure and innovation
• shocks and innovation

Question 17

How could possible increasing marginal returns exist

Answer 17

• capital could in fact be subject to increasing marginal returns, because
• once costs of innovation are paid, then it can happen
• economics of ideas

Question 18

Limits to growth?

Answer 18

resource exhaustion(less true since we adapt)
environmental degradation