Technology Flashcards
(40 cards)
What is the narrow definition of the “state of technology” ?
A set of blue prints defining the range of products and the techniques available to produce them
What is the broader definition of the “state of technology” ?
A set of blue prints defining the range of products and the techniques available to produce them, which additionally captures how the economy is organised, from the nature of instructions to the role of government
What happens to the production function when there is an improvement in technology
The production function pivots outwards, leading to an increase in output per worker for every given level of capital per worker
What other things can technological improvements lead to ?
Ø Larger quantities of output
Ø Better products
Ø New products
Ø A larger variety of products
How does our production function change when we input technological progress ??
State of technology is represented by an A
Y = F(K, N, A)
Output depends on capital, labour and the state of technology
What is the more convenient way to write the production function which now includes A
Y = F(K, AN)
It is more restrictive however
It is saying that technological progress reduces the needed number of workers needed to achieve a given amount of output
Once the production function changes to Y = F(K, AN) what is labour measured in ?
Efficiency units, AN
Technological progress and the production function
What is the relation between output per effective worker and capital per effective worker ??
Explain this graph
Because of decreasing returns to capital, increases in capital per effective worker lead to smaller and smaller increases in output per effective worker
Assumptions of Solow’s models when including technological progress
-Number of workers is now growing at a constant rate, Gn
-Technology is improving at a constant rate, Ga
Without technological improvements these both = 0
What is the relation between investment and capital per effective worker
-Where I = Investment
-Where S = Saving
-Where s = The saving rate
What is the relation between investment and capital per effective worker and what does it result in ??
-We can determine how much investment
is needed to keep capital per effective worker constant.
-For a given saving rate, this will determine a steady state level of capital per effective worker and that will then determine output per effective worker.
-In contrast to before technological progress is driving growth in output
How much investment is needed to keep a constant level of output per effective worker ??
-With the rate of growth of technological progress gA and the rate of population
growth gN , AN grows at a rate (gA +gN)
The investment needed to maintain a given level of K /AN is given by
Draw the graph for required investment, capital and output per effective worker
Explain this graph
-This graph shows the steady state when technological progress is introduced
-Point A, actual investment exceeds required investment so K/AN rises
-In the long run K/AN reaches the steady state, (K/AN)* at point E and output per effective worker is (Y/AN) = AG
What are the characteristics of balanced growth?
At the steady state in the model with
technological progress what is present ?
- Balanced growth can be seen
-Given that technological progress is growing at rate gA, the level of output per worker is growing at rate gA.
What is the effect of an increase in the saving rate when taking into account technological progress ??
An increase in the saving rate leads to an increase in the steady-state levels of output per effective worker and capital per effective worker. The economy returns to balanced growth.
What happens in an economy with technological progress and population growth ??
Output grows over time and the economy will converge to a balanced growth path
What is the balanced growth path ??
It is when output per worker and capital per worker grow at the same rate as technological progress
What determines technological progress ?
-In most modern societies technological progress is a result of a firms research and development activities (R&D)
What does R&D spending depend on ?
-The fertility of the research process, in other words how funding R&D translates into new ideas and new products
-The extent to which firms benefit from the results of their own R&D
