These shocks disrupt economic well being by pushing

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Unformatted text preview: model predicts that if the two economies have the same steady state (as determined by s, n, and g) then they would converge. However, if the two economies have different steady states, we would not expect convergence. Factor accumulation versus production efficiency: international differences in income per person can be attributed to either 1) differences in the factors of production, such as physical or human capital, or 2) differences in the efficiency with which economies use their factors of Page 25 of 52 Jessica Gahtan Prof: Mokhles Hossain Macroeconomics ECON2000 Fall 2013 production. Studies find that these are correlated: nations with high levels of physical and human capital also tend to use those factors efficiently. Policies to promote growth Evaluating the rate of saving: the saving rate determines the steady- state levels of capital and output. One particular saving rate produces the Golden Rule steady state. Based on Canadian statistics, the return to capital (MPK – δ) is greater than the economy’s average growth rate (n + g). Therefore the Canadian economy is well below the Golden Rule level of capital. This suggests that Canadian policymakers should want to increase the rate of saving and investment. Changing the rate of saving: the most direct way to increase national saving is through public saving. If the government runs a budget surplus it can retire some of the national debt and stimulate investment. The government can also influence private saving by changing incentives. High tax rates on capital income discourage private saving by reducing the rate of return that savers earn. Tax- exempt retirements savings plan such as RRSPs are designed to encourage private saving. Allocating the economy’s investment: there are many types of capital. Private businesses invest in traditional types of capital such as steel plants and newer types such as computers. Government invests in public capital, called infrastructure, such as roads, bridges, etc. There is also human capital, the knowledge and skills that workers acquire through education and on- the- job training. Policymakers trying to stimulate growth must decide what kinds of capital the economy needs most (will yield the highest marginal product). A tech...
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This test prep was uploaded on 03/28/2014 for the course ECON 2000 taught by Professor Henriques during the Fall '10 term at York University.

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