Topic 7: Economic Growth 1 Flashcards
(21 cards)
What are the three time frames in economic growth?
Short run, Medium run, Long run
Short run: Capital fixed; only labor adjusts. Medium run: Labor market adjusts; capital and tech fixed. Long run: All factors (labor, capital, tech) can change.
In the long run, what factors can change?
Labor, Capital, Technology
Long-run growth depends on these factors, allowing for sustainable output expansion.
What is a key feature of the long-run perspective in macroeconomics?
No fixed factors → output can expand sustainably.
What has been the income growth of the US and Western Europe since 1000 AD?
Income per capita ≈ 20x higher than 100 years ago, ≈ 100x higher than 200 years ago.
What is divergence in the context of global growth patterns?
Income inequality between countries has widened over time.
What are examples of convergence in economic growth?
- Postwar Europe (e.g., Germany, Italy, Spain) * Asian Tigers * Some BRICS nations (e.g., China, India)
What is the middle-income trap?
Countries like Argentina stagnate after initial growth.
What is the formula for the aggregate production function in the Solow Growth Model?
Y = F(K, AN)
Y: Output, K: Capital, N: Labor, A: Technology (effectiveness of labor).
What are the key assumptions of the Solow Growth Model?
- Constant returns to scale * Diminishing returns to capital
What is the output per effective worker formula?
y = Y / AN, k = K / AN, y = f(k)
What does the capital accumulation equation represent?
k_{t+1} - k_t = s cdot f(k) - (delta + g_A + g_N)k
What does steady state in the Solow Growth Model indicate?
Δk = 0, meaning s f(k) = (δ + g_A + g_N)k
In the steady state, what remains constant?
Capital per effective worker.
What is the long-run output growth rate without technological progress?
0
What is the long-run output growth rate with technological progress?
g_A + g_N
How does a higher savings rate affect output in the Solow Growth Model?
Leads to a higher level of output, but not a permanent increase in growth rate.
What characterized rapid socialist industrialisation in the USSR, China, and North Korea?
- High savings and state-driven investment * Low consumption, often at population’s expense * No technological progress: g_A = 0
What was the growth rate in postwar France from 1946 to 1950?
9.6% per year (GDP ↑ 60% in 5 years)
What happens to capital per worker initially when technology is introduced?
↓ capital per worker (investment goes to new tech)
What is the core driver of sustainable economic growth?
Technological progress.
According to the Solow model, how can poor countries catch up?
By saving, investing, and adopting technology.
