ECO2004S Summary that will change everything! (1).pdf

Taking gdp and conve 1 exchange rat 2 there are diff

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Taking GDP and conve 1. Exchange rat 2. There are diff Use PPP = purchasing p What matters is consum Determinants of Growth Aggregate production f the production inputs Y = aggregate output K= capital (sum of PPE) N = labour (no. of workers Technology determine amount of K and N Returns to scale and return Constant return to scal doubled, aggregate out Flexible exchange rat attractive in MR because it a countries to use two macroe under fixed exchange country cannot use monetar Open Economy in the Med Aggregate demand in economy with a fixed exchan o higher employment lower unemploym levels H THEORY dard of living put per person rather than output erting it to dollars doesn’t always work, bec tes can vary ference is the cost of living in each country power parity mption (amount of good one can consume) function = relationship between aggregate Y = F(K,N) s) es the amount of output that can be produce s to factors le = if the amount of capital (K) and labour tput will double te os more allows economic tools e rate the ry policy dium Run n an open nge rate is: ment higher cause: y ) e output and ed for a given (N) are
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Decreasing return to ca output at a decreasing Decreasing returns to l leads to an increase in Output per worker and Capi Constant returns to sca function as: The amount of output per worker depends on the amount of capital per worker Sources of Growth Why does output per p over time? An increase in output p can come from an incr per worker (K/N) An increase in output p also come from techno apital = an increase in capital leads to an in rate labour = an increase in labour given an am output at a decreasing rate ital per worker ale means that we can write the aggregate p person increase per worker (Y/N) rease in capital per worker can ology ncrease in mount of capital production
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Capital accumulation a required SAVINGS CAPITAL ACCU Interactions between Outpu 2 Relations: 1. Capital d 2. The amo amount o Under constant return Assumption of the mod 1. Size of th 2. Participa 3. Unemplo 4. Output p 5. There is Output and Investment Assume the economy is alone can’t sustain growth technological UMULATION AND OUTPUT ut and Capital determines the amount of output being pro ount of output determines the amount of sa of capital accumulated over time to scale: del: he population is constant ation rate is constant oyment rate is constant per worker = output per person no technological progress s closed progress in oduced avings the
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Assume public savings is equa Assume that private savings is We get: Investment and capital accu Investment is an inflow Capital (K) is a stock Capital stock is given b Now we have: PRODUCTION FUNCTION: CAPITAL ACCUMULATION: If we combine the two output over time I = S + (T-G) al to zero I = S s equal to income S = S(Y) I t = SY t umulation w by: functions we get the relationship between Change in capital over time Savings per worker – depreciation per worker n capital and r
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