Macroeconomics plus MyEconLab plus eBook 1-semester Student Access Kit (6th Edition)

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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 Fifth Edition Users A) The application, “The post-1973 slowdown in productivity growth” has been shortened B) The application, “A U.S. Productivity Miracle?” has been deleted, but is available in this instructor’s manual if you would like to continue using it C) A new application, “The Recent Surge in U.S. Productivity Growth” has been added D) The application, “Do economies converge?” has been deleted, but is available in this instructor’s manual if you would like to continue using it E) A new application, “The growth of China” has been added new Figs. 6.10 to 6.13 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
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Chapter 6 Long-Run Economic Growth 117 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 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. 3. Application: the post-1973 slowdown in productivity growth What caused the decline in productivity?
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