Lec15-_Ch10_Ch11-I_-ECON2123-LI-fa13-stu

Or technological progress they can come from

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Unformatted text preview: hat shift the production function, F, and lead to more output per worker given capital per worker. 25 Macroeconomics by Yao Amber LI 10.4 THINKING ABOUT GROWTH: A PRIMER The Sources of Growth Figure 10 - 5 The Effects of an Improvement in the State of Technology An improvement in technology shifts the production function up, leading to an increase in output per worker for a given level of capital per worker. 26 Macroeconomics by Yao Amber LI 10.4 THINKING ABOUT GROWTH: A PRIMER The Sources of Growth We can think of growth as coming from capital accumulation and from technological progress—the improvement in the state of technology. These two factors play very different roles in the growth process: Capital accumulation by itself cannot sustain growth. (Why? Chapter 11) Intuition: decreasing returns to capital. Saving rate is the proportion of income that is saved. Sustained growth requires sustained technological progress. The economy’s rate of growth of output per person is eventually determined by the economy’s rate of technological progress. (Chapter 12 and 13) 27 Macroeconomics by Yao Li REFRESH 1. 2. 3. With CRS (constant returns to scale), we know that the increase in capital leads to the same increase in output, given labor input constant. Capital accumulation does not affect the level of output in the long run; only technological progress does. For this question, assume that there are decreasing returns to capital, decreasing returns to labor, and constant returns to scale. Now suppose that both capital and labor decrease by 5%. Given this information, we know that output (Y) will A) not change. B) decrease by less than 5%. C) decrease by 5%. D) the reduction in Y will be more than 5% but less than 10% E) none of the above 28 Macroeconomics by Yao Li IN-CLASS 4. For this question, assume that there are decreasing returns to capital, decreasing returns to labor, and constant returns to scale. A reduction in the capital stock will cause which of the following? A) a reduction in output B)...
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