topics 7&8 Flashcards
(23 cards)
What model is used to analyze long-run economic growth?
Solow growth model
The Solow growth model examines the dynamics of economic growth through capital accumulation, labor or population growth, and technological advancement.
What are the three main features of the Solow growth model?
- No fixed factors of production
- Population can grow and be educated
- New technology advancement possible
What does the aggregate production function represent?
Y = f(K, AN)
Y is aggregate output, K is capital, N is labor, and A is technology.
What does constant returns to scale mean in the context of the Solow growth model?
2xAN = 2xY and 2xK
This indicates that doubling the inputs results in doubling the output.
What is diminishing returns to capital?
If AN is fixed, a rise in K leads to smaller and smaller increases in output.
In a closed economy model, what does the equation Y=C+I represent?
Total output equals consumption plus investment.
What does the equation S=I signify in the Solow growth model?
Savings equals investment.
What does the evolution of capital stock depend on?
Investment and depreciation of existing capital.
What happens to capital per effective worker when investment exceeds required investment?
Capital per effective worker increases until it reaches steady state.
What is the effect of a higher savings rate on capital per effective worker?
K/AN grows until it reaches the new equilibrium point.
What characterizes the output curve when there is no population or tech growth?
Stagnant output represented by a horizontal line on the graph.
What was a key characteristic of rapid socialist industrialization?
Heavy industry prioritized, consumption sacrificed.
What did economic growth in China, USSR, and North Korea come at the expense of?
Consumption and population.
What is the relationship between the savings rate and long-run growth in the Solow model?
No impact on long-run growth.
What does the growth rate of the economy equal when both tech and population grow?
Growth rate of tech + growth rate of population.
What is a critique of the Solow growth model?
Closed economy model with no government.
How can economic growth be achieved according to the Solow model?
By a rise in the savings rate or the growth rate of technology.
What major change occurred in China from 1978-2010?
10% year on year real GDP growth.
What is expected to happen to the world’s population according to current projections?
Stabilize at 11 billion.
What are the consequences of greenhouse gas emissions?
Climate change, rising sea levels, mass population displacement.
What type of inequality arises from climate change?
Inter-generational and intra-generational inequality.
What happens if all technological progress is stopped according to the Solow model?
Economic stagnation and emissions remain constant.
What is the ultimate goal of shifting to clean technology?
Reduce emissions while continuing economic growth.
