Lecture 6.2: Long-run growth

Question 1

What is long-run growth?

Answer 1

Growth in potential output Y*

Question 2

Output per person formula

Answer 2

output per worker x participation rate

Question 3

What is output per worker (labour productivity) denoted as?

Answer 3

Y/L

Question 4

Determinants of output per worker (ie. labour productivity)

(6)

Answer 4

1. Technology
2. Human capital - skills, education etc.
3. Physical capital (K)
4. Organisational capital - management etc.
5. Political and legal institutios, property rights
6. Land and natural resources

Question 5

Aggregate production function (Cobb-Douglas)

Answer 5

Y = A x F(K, L)
where, F(K, L) = K^(alpha)L^(1-alpha)

Question 6

Three properties of cobb-douglas production function

Answer 6

1. Positive marginal products
2. Diminishing returns to each input, individually
3. Constant returns to scale, to all inputs jointly

Question 7

Positive marginal product

Answer 7

How much extra output you get from adding a bit more of a certain input

Question 8

Formula for MPK (marg product of capital)

Answer 8

= dY/dK
= alphaK^(alpha-1)L^(1-k)

Question 9

Formula for MPL (marginal product of labour)

Answer 9

= dY/dL
= (1-alpha)K^(alpha)L^(-alpha)

Question 10

Diminishing returns to each input individually

Answer 10

Marginal benefit of adding more inputs is negative - marginal benefit is greatest when K and L is scarce
demonstrated in the second derivatives with respect to K and L

Question 11

Constant returns to scale - all inputs jointly

Answer 11

If we proportionally scale the inputs then we will proportionally scale the output

ie. F(xK, xL) = xY

Question 11

What do shifts in the production function mean?

Answer 11

Increased total factor productivity (TFP)

Question 12

What do movements along the production function mean?

Answer 12

up the curve means an increase in capital intensity