# 6 - Chapter 6 Long-Run Economic Growth Learning Objectives...

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Unformatted text preview: Chapter 6 Long-Run Economic Growth Learning Objectives I. Goals of Chapter 6 A) Identify forces that determine the growth rate of an economy 1. Changes in productivity are key 2. Saving and investment decisions are also important B) Examine policies governments may use to influence the rate of growth II. Notes to Fourth Edition Users A) The application, “Growth accounting and the east Asian miracle” has been deleted B) A new application, “A U.S. productivity miracle?” has been added to discuss the huge productivity increase in the second half of the 1990s C) The political environment box on “Economic growth and democracy” has been deleted D) The discussion of industrial policy in Section 6.3 has been deleted Teaching Notes I. The Sources of Economic Growth (Sec. 6.1) A) Production function Y = AF ( K , N ) (6.1) 1. Decompose into growth rate form: the growth accounting equation ∆ Y / Y = ∆ A / A + a K ∆ K / K + a N ∆ N / N (6.2) 2. The a terms are the elasticities of output with respect to the inputs (capital and labor) 3. Interpretation a. A rise of 10% in A raises output by 10% b. A rise of 10% in K raises output by a K times 10% c. A rise of 10% in N raises output by a N times 10% 4. Both a K and a N are less than 1 due to diminishing marginal productivity B) Growth accounting 1. Four steps in breaking output growth into its causes (productivity growth, capital input growth, labor input growth) a. Get data on ∆ Y / Y , ∆ K / K , and ∆ N / N , adjusting for quality changes b. Estimate a K and a N from historical data c. Calculate the contributions of K and N as a K ∆ K / K and a N ∆ N / N , respectively d. Calculate productivity growth as the residual: ∆ A / A = ∆ Y / Y – a K ∆ K / K – a N ∆ N / N 104 Abel/Bernanke • Macroeconomics, Fifth Edition Numerical Problems 1 and 2 are growth accounting exercises. 2. Growth accounting and the productivity slowdown a. Denison’s results for 1929–1982 (text Table 6.3) (1) Entire period output growth 2.92%; due to labor 1.34%; due to capital 0.56%; due to productivity 1.02% (2) Pre-1948 capital growth was much slower than post-1948 (3) Post-1973 labor growth slightly slower than pre-1973 (4) Productivity growth is major difference (a) Entire period: 1.02% (b) 1929–1948: 1.01% (c) 1948–1973: 1.53% (d) 1973–1982: –0.27% b. Productivity growth slowdown occurred in all major developed countries Theoretical Application Growth accounting provides the basis for the real business cycle (RBC) model of the economy, which we will discuss in greater detail in Chapter 10. The RBC model takes movements in total factor productivity to be the primary source of business cycle fluctuations....
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## This note was uploaded on 04/14/2010 for the course ECONOMICS 2312 taught by Professor William during the Spring '09 term at 東京大学.

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6 - Chapter 6 Long-Run Economic Growth Learning Objectives...

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