Solow Growth model II Flashcards
(9 cards)
recap of solow growth model (including limitations)
-closed economy
-no government
-save a constant fraction of output
-s=I
-constant returns to scale
-diminishing returns to capital
-rising in savings rate temporarily increases output
-rise in growth of tech leads to decline in capital per effective worker but increases output
further limitations
-gA is exogenous and unexplained, long-run growth driven by growth of tech yet we don’t know where it comes from
-still based on GDP (no healthcare/education, no inequality)
-no reference to environment
chinese growth miracle (brief intro)
explain and read from book
central planning era (explanation and graph)
-devoted to industrialisation, growth only 2.3%, built up industrial infrastructure, but inefficient and low consumption
-set up graphs as normal
1)savings rate increases
2)excess savings compared to required investment (build up capital stock)
3) process continues until steady state
-on bottom graphs stagnate, 1949 curve line through rise in savings, then stagnate again
chinese growth miracle part 2 (post 1978, explanation and graph)
-adapted its reform and open-door policy
-household could choose to grow food and sell at market prices (similar reforms in other areas)
-GDp increased by 10%,
-78-95: A>1, gA>1
-set up graphs as normal
-rise in tech, rise n required investment
growth and climate crisis
-greenhouse gas emissions represent largest market failure, climate change caused by GHG emissions released by fossil fuel burning
-failure to reduced GHG: rising sea levels, mass pop displacement, spread of infectious diseases
-carbon is not the only problem: synthetic fertilisers we add to soil are bad, only 62% of land that can be deforested exists
inter generational vs intra-generational and modelling emissions
-intergenerational: current generation benefits from fossil fuels, does not internalise external costs- climate change is a negative externality
-intragenerational: rich nations located in temperate climates and can adapt while hotter and poorer cannot
modelling
-wizards: can use tech to solve climate crisis
-prophets: world is governed by fundamental ecological processes, we are transgressing to our peril
modelling climate crisis (equation, explanation and graph)
gA=beta(gA dirty)+(1-beta)gA clean
-0<Beta<1
-assume all growth up until 2020 has been dirty: gA=beta gA dirty
-assume output using dirty tech is directly proportional to emissions: Ytdirty=Et
-to simplify: assume pop growth=0 gN=0
-expected to stabilise at 11bn, no emissions from clean
-set p LHS graph as normal
-RHS, safe emissions dotted line below upward sloping curve with gradient gA
solutions 1 and 2 to resolve climate crisis (explanation and graph and explanation)
solution 1: stop tech progress
solution 2: reverse tech progress to reduce emissions
-graphs: set up as normal
solution 1
1) set gA to 0, increase savings, savings> required investment, boosting K/AN until new steady state
solution 2: other way round (rhs drops to safe emissions levels
-solution 1: stagnation but no emissions, per capita income rises
solution 2: reduction i. emissions to safe levels but per capita income levels fall
solutions 3 and 4 to resolve climate crisis (explanation, graphs and conclusion)
-solution 3: stop dirty tech and move to fully clean tech (beta=0)
-solution 4: stop dirty tech progress and replace dirty tech w/clean tech
-graphs: set up as normal
-solution 3: don’t change LHS, all new are clean (rising at same rate on RHS, difference between dirty which is stagnant and clean which is rising)
-solution 4: LHS stays the same, dirty falls, clean rises but at a lower rate tjay before
-conclusion: 1 is bad (stagnant and unsafe future emissions) 2 is okay (lower and stagnant growth but safe emissions), 3 is okay (infinite growth but unsafe emissions), 4 is best (infinite but lower growth and safe emissions)
