econ3 8-3 - 2-11-08 Ch. 8 continued - Growth in population...

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Unformatted text preview: 2-11-08 Ch. 8 continued - Growth in population and production effect Classical theory (something boost productivity and economic growth o o o GDP per person same (just enough to reproduce) Living standard remains same through increase in GDP This doesn’t capture for modern economist - Neo classical (created by Robert Solo) o o o o 1950’s, econ. Growth due to tech. Population and etc increase because tech. Increase in tech leads to increase in investment (boost everything) Starts with unexpected tech. change (after all gone through GDP increase to normal) - New Growth Theory o Real GDP per person grows because of choices that people make pursuit of profit Take neo and said “explain what starts tech change” No end to the story: it keep happening (people has endless desire to gain profit) (more and more development) End of patent competition starts and profit decreases so people try to find new way to make profit (ex. Pharmacy) o o o - Starts with Random tech change o o Increase in demand for loanable fund (investment Demand) Increase in quantity of loanable fun (level of investment) Increase capital stock • Increase labor product o P.F. shifts up o Labor demand increase Increase in aggregate hours • Increase in potential GDP Increase in real wage • Cycles back o - Increase real interest rate At the end of tech change o Increase potential GDP (NOT THE END BUT BEGINNING) It means more free time so more creative • Further tech improvement - Cycles In new growth o o o o Tech change is endogenous not exogenous Most optimistic (we control our future) Hard to explain the cycle We keep innovating - New growth theory o Growth in real GDP per person can persist indefinitely. ...
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econ3 8-3 - 2-11-08 Ch. 8 continued - Growth in population...

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