Chapter 12 Flashcards
(8 cards)
What effect does technological progress have?
Technological progress reduces the amount of workers needed
Tech. Progress increases the output that can be produced with a given number of workers.
At what rate is output growing in steady state?
in steady state, output (Y) is growing at the same rate as effective labor (AN) so that the ratio of the two is constant.
Is output growth independent of the saving rate?
Yes. Since output growth = population growth and the rate of technological progress, it is independent of the saving rate.
What would need to happen if an economy would try to sustain a positive output?
Effective labor grows at rate (gA + gN). Suppose the economy tried to sustain positive output growth in excess of (gA + gN). Because of decreasing returns to capital, capital would have to increase faster than output. The economy would have to devote a larger and larger proportion of output to capital accumulation. At some point this would prove impossible. Thus, the economy cannot permanently grow faster than (gA + gN).
When is the economy experiencing a balanced growth?
On the balanced growth path (in steady state, in the LR):
- Capital per effective worker and output per effective worker are constant.
- Capital per worker and output per worker are growing at the rate of technological progress
- Labor is growing at the rate of population growth, capital and output are growing at the rate equal to the sum of population growth and technological progress (gA + gN).
What determines the rate of technological progress?
The outcome of firms’ research and development (R&).
Spending on R&D to increase profits.
The level of spending on R&D depends not only on the fertility of research (how spending translates into new ideas and new products), but also on the appropriability of research results (the extent to which firms can benefit from their R&D)
What sources imply high growth rate over some period of time?
It may reflect a high rate of technological progress under balanced growth
It may reflect instead the adjustment of capital per effective worker, K/AN, to a higher level. Such an adjustment (as increase in saving rate) leads to a period of higher growth, even if the rate of technological progress has not increased.
Can we tell how much of the growth comes from one source and how much from the other?
Yes. If high growth reflects high balanced growth, output per worker should be growing at a rate equal to the rate of technological progress.
If high growth reflects the adjustment to a higher level of capital per effective worker, this adjustment should be reflected in a growth rate of output per worker that exceeds the rate of technological progress.
