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EC316 > Technology > Flashcards

Technology Flashcards

1
Q

What is the narrow definition of the “state of technology” ?

A

A set of blue prints defining the range of products and the techniques available to produce them

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2
Q

What is the broader definition of the “state of technology” ?

A

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

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3
Q

What happens to the production function when there is an improvement in technology

A

The production function pivots outwards, leading to an increase in output per worker for every given level of capital per worker

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4
Q

What other things can technological improvements lead to ?

A

Ø Larger quantities of output
Ø Better products
Ø New products
Ø A larger variety of products

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4
Q

How does our production function change when we input technological progress ??

A

State of technology is represented by an A

Y = F(K, N, A)

Output depends on capital, labour and the state of technology

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5
Q

What is the more convenient way to write the production function which now includes A

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

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6
Q

Once the production function changes to Y = F(K, AN) what is labour measured in ?

A

Efficiency units, AN

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7
Q

Technological progress and the production function

A
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8
Q

What is the relation between output per effective worker and capital per effective worker ??

A
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9
Q

Explain this graph

A

Because of decreasing returns to capital, increases in capital per effective worker lead to smaller and smaller increases in output per effective worker

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10
Q

Assumptions of Solow’s models when including technological progress

A

-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

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11
Q

What is the relation between investment and capital per effective worker

A

-Where I = Investment
-Where S = Saving
-Where s = The saving rate

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12
Q

What is the relation between investment and capital per effective worker and what does it result in ??

A

-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

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13
Q

How much investment is needed to keep a constant level of output per effective worker ??

A

-With the rate of growth of technological progress gA and the rate of population
growth gN , AN grows at a rate (gA +gN)

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14
Q

The investment needed to maintain a given level of K /AN is given by

A
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15
Q

Draw the graph for required investment, capital and output per effective worker

A
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16
Q

Explain this graph

A

-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

17
Q

What are the characteristics of balanced growth?

A
18
Q

At the steady state in the model with
technological progress what is present ?

A
  • 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.
19
Q

What is the effect of an increase in the saving rate when taking into account technological progress ??

A

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.

20
Q

What happens in an economy with technological progress and population growth ??

A

Output grows over time and the economy will converge to a balanced growth path

21
Q

What is the balanced growth path ??

A

It is when output per worker and capital per worker grow at the same rate as technological progress

22
Q

What determines technological progress ?

A

-In most modern societies technological progress is a result of a firms research and development activities (R&D)

23
Q

What does R&D spending depend on ?

A

-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

24
Q

Explain the determinants fertility of the research process

A
  • Interaction between basic research and applied research
    -The country, some are more successful at basic research and others more successful at applied research
    -Timing, how much time for the full potential of major discoveries to be realised
25
Q

What is basic research ?

A

The search for general principals and results

26
Q

What is applied research ?

A

The application of the results to specific results

27
Q

What is R&D excludability ?

A

The owner of a piece of property the right to deny its use to others unless they pay for it (Patents)

Without excludability of ideas, people may be discouraged to develop anything new and lower investment in technology

28
Q

How can governments encourage R&D ?

A

-Government spending on R&D
-Tax incentives for R&D
-Patents
-Grants to fund basic research at universities.

29
Q

R&D in certain countries

A

-Less technologically advanced countries have poorer patent protection laws
-These countries are users of new tech
-Productivity improvements reflects adaption rather than innovation

30
Q

What is Solow’s residual for measuring technological growth ?

A
31
Q

What are the main facts that apply to OECD countries when it comes to growth ??

A

-Rates of growth have been close to rates of
technological progress.
-OECD countries that have seen convergence of output per worker toward the USA (eg. Japan and the UK) have had higher technological progress than in the USA.

32
Q

Why do poorer countries accumulate capital quicker ??

A

-This is because the more advanced economies are at the technological frontier and they are relied upon to develop new ideas, precesses and new products
-This is much easier for these less advanced economies to imitate rather than to innovate, this is also why convergence is seen as techonological catch-up

33
Q

What do economists use the term institutions to define ??

A

The set of rules, organisations, social structures and customs that govern the behaviour of individuals and firms

34
Q

What is another source of income differential between countries ?

A

Resources may be used more or less efficiently because of differences in institutions

Sources of inefficiency can include crime, corruption and lawlessness

35
Q

Why do economic institutions matter for economic growth ??

A

-They shape the way economic activity is organised and influence investment in physical and human capital, technology and the organisation of production

36
Q

What are some of the most basic set of institutions that affect economic growth

A

Property Rights
-Protect property from expropriation by government or other parties
-These are required to have an incentive for people to undertake investment
-Good legal institutions protect property rights

37
Q

Why is creating the right institutions important ??

A

It ensures that resources are allocated to their best use
-Law and order and a judicial system that enforces contracts in an impartial way
-Corruption-free governments, promote competition and enforce contracts

38
Q

What are some good government policies that ensure good institution

A

-Education
-Health care
-Investment into transport and infrastructure

39
Q

What are some bad government policies that don’t ensure good institution

A

-High taxes
-Dictators and corrupted bureaucrats
-Regulation

EC316 (7 decks)

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