08 Long Term Economic Growth, Part 1

# 08 Long Term Economic Growth, Part 1 - 1 8-1 Long-Run...

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Unformatted text preview: 1 8-1 Long-Run Economic Growth, Part 1 8-2 Agenda • The Sources of Economic Growth • Growth Dynamics: The Solow Model 8-3 Long-Run Economic Growth • Countries have grown at very different rates over long spans of time. 8-4 The Sources of Economic Growth • The economy’s production function is: Y = AF ( K , N ) • The growth accounting formula : ' Y / Y = ' A / A + a K ' K / K + a N ' N / N ¾ The a terms are the output elasticities with respect to the K and N inputs. 2 8-5 The Sources of Economic Growth • According to the growth accounting formula: ' Y / Y = ' A / A + a K ' K / K + a N ' N / N ¾ A rise of 10% in A raises output by 10%. ¾ A rise of 10% in K raises output by a K times 10%. ¾ A rise of 10% in N raises output by a N times 10%. 8-6 The Sources of Economic Growth • Accounting for Growth: ¾ Collect data on ' Y / Y , ' K / K , and ' N / N . • Adjust for quality changes. ¾ Estimate a K and a N from historical data. 8-7 The Sources of Economic Growth • Accounting for Growth: ¾ Calculate the contribution of K as a K ' K / K . ¾ Calculate the contribution of N as a N ' N / N . ¾ Calculate productivity growth as the residual: ' A / A ' Y / Y – a K ' K / K – a N ' N / N 8-8 Table 6.3 Sources of Economic Growth 3 8-9 The Sources of Economic Growth • Accounting for Growth: ¾ Why the post-1973 productivity slowdown? • Measurement —inadequate accounting for quality improvements. • The legal and human environment —regulations for pollution control and worker safety, crime, and declines in educational quality....
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## This note was uploaded on 07/29/2010 for the course UGBA 100b taught by Professor Wood during the Summer '10 term at Berkeley.

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08 Long Term Economic Growth, Part 1 - 1 8-1 Long-Run...

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