chapter 10: growth – long run facts of growth from fluctuations (short and medium runs) to growth...
TRANSCRIPT
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Chapter 10: Growth – Long run
• Facts of Growth
• From fluctuations (Short and Medium runs) to growth (Long run)
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Characterization of three worlds (on average)
1st World: - Rich, Healthy, Educated, Happy
2nd World:- Moderate Income, Moderate Health, Moderate
Education and Moderate Happiness
3rd World:- Poor, Diseases, Low Education, Wars,
Corruption, Depression
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Case of US (Real GDP in 2005 dollars)
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Case of US (Real GDP per capita in 2005 dollars)
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Standard of living
Question: How do we understand whether a country has a higher standard of living than some other country? E.g. China and Luxembourg
China Luxembourg
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Standard of living (cont’d)
Potential candidate: GDP
Problem: China’s GDP is 121 times the GDP of Luxembourg. But standard of living in Luxembourg is much higher!
Solution: look at GDP per capita GDP per capita in Luxembourg is 18 times
higher than in China
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Standard of living (cont’d)
Is GDP per capita without its problems?- Everything is much cheaper in China (including food, housing, appliances etc.)So, $6000 in China will buy more than $6000 in Luxembourg
Solution: Purchasing Power Parity (PPP)
Look at how much they can purchase with the respective per capita GDP amount.
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Growth in advanced countries
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Does Money lead to Happiness?
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Convergence
Growth Rate of GDP Per Person since 1950 versus GDP per Person in 1950; OECD Countries
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ConvergenceGrowth Rate of GDP per Person since 1960, versus GDP Per Person in 1960 (2005 dollars); 76 Countries
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Growth – A primer
Did you really think you could dodge math??
Production function:
Y = F(K, N)
• CRS: doubling all factors exactly doubles output• DRS: doubling all factors results in less than a
double increase in output• IRS: doubling all factors results in more than a
double increase in output
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Growth – Output per worker
𝑌𝑁
=𝐹 ( 𝐾𝑁 ,𝑁𝑁 )=𝐹 ( 𝐾𝑁 ,1)
• Y/N is output per worker• K/N is capital per worker
We would like to model growth in an economyLet’s consider the contribution of a single worker:
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Growth – Output per worker
Under constant returns to scale:Decreasing marginal product of capital: Each added capital unit adds less to output than the previous unit
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Growth – Output per worker
What happens when there is a shift in technology?