Lectures 10&11: Growth, Innovation and Institutions Flashcards
(28 cards)
What is the key to sustained economic growth over the long term?
Technological progress.
Why can’t capital accumulation alone sustain long-term growth?
Because of diminishing marginal returns to capital.
What is more beneficial in the long run: stabilizing cycles or increasing growth?
Increasing the long-term growth rate.
What are the two essential drivers of long-term GDP per capita growth?
Capital input and total factor productivity (TFP).
How is GDP per capita broken down in terms of labor and productivity?
GDP/Population =
(GDP/Hours) × (Hours/Employed) × (Employed/Labor Force) × (Labor Force/Population)
What does Total Factor Productivity (TFP) measure?
The efficiency with which labor and capital are used to produce output.
What are some sources of TFP?
Technology
Innovation
Education quality
Organization and management
Efficiency
What does the “TFP residual” represent?
The unexplained portion of output not accounted for by capital or labor.
Why is TFP often called the “ignorance term”?
Because it captures growth drivers we don’t fully understand or can’t measure directly.
What are the three components that drive GDP growth?
More labor input (“perspiration”)
More capital (“denial”)
Higher TFP (“innovation”)
What is the Cobb-Douglas production function typically used for?
Modeling how capital and labor contribute to output, factoring in TFP.
What happens to the marginal product of capital as capital increases?
It decreases (diminishing returns).
Why might poorer countries grow faster than richer ones?
Due to their higher marginal product of capital (convergence).
What is the purpose of growth accounting?
To determine how much of economic growth comes from capital, labor, and TFP.
If capital decreases by 3.5% and labor increases by 1.5%, what else is needed to compute GDP growth?
The contribution of TFP (residual).
What determines the amount of investment in an economy?
The level of savings.
What is the “golden rule” of capital accumulation?
The investment rate that maximizes steady-state consumption (MPK = depreciation rate).
What does the Solow Model explain?
Why some countries grow richer and how economies grow over time.
In the Solow Model, what leads to long-term growth?
Technological progress.
What happens in the Solow Model’s steady state?
Capital per worker and output per worker no longer grow unless technology improves.
What distinguishes endogenous growth theory from the Solow model?
It explains technological progress from within the model via R&D, human capital, etc.
What are spillover effects in endogenous growth models?
Positive externalities from ideas and innovations benefiting others.
How do poor countries catch up with rich ones?
Through imitation of technologies (convergence).
What roles do institutions play in growth?
Institutions support innovation, protect property rights, and enable markets to function.
