focus heavily on technological change and its effect on long run economic

Focus heavily on technological change and its effect

This preview shows page 43 - 46 out of 99 pages.

focus heavily on technological change and its effect on long run economic growth Keeping technology constant Per - worker production function: shows the relationship between RGDP per hour worked (Y/L) and capital per hour worker (K/L) Make capital better i. Better machinery and equipment 1. Education/training/experience/entrepreneurship i. Increase in human capital 2. Better institutions 3. There are 3 main sources of technological change: This is because as you add more capital per hour worked (K/L) output increased but with diminishing returns The per-worker production function increase at a decreasing rate Diminishing marginal returns to capital exist because adding machines decreases their value A Model of Growth: Per-worker production Function: , Increase in Labor Productivity: Lesson 7 Page 43
Image of page 43
Improvement in growth theory -> explaining where productivity growth comes from According to the Solow model, productivity growth is a key function in explaining long-run growth Paul Romer: credited with developing New growth theory Endogenous Model (New Growth Theory): a model of long-run economic growth that emphasizes that technological changes that influenced by economic incentives Focuses on accumulation of knowledge capital (ideas) as a key component of economic growth Protect intellectual property with patents and copyrights Subsidize research and development Subsidize education Government policy can help increase the accumulation of knowledge capital by: Rivalrous; when one person uses it another can not Decreases returns to scale Physical capital is rivalrous When one person uses it so can others Increases returns to scale Knowledge capital is non-rivalrous Why does it focus on knowledge capital (ideas) instead of physical capital (objects) New Growth Model: Lesson 7 Page 44
Image of page 44
The President has far less influence over the economy Robert Gordon argues that we have essentially experienced 3 different Industrial Revolutions over the past couple of centuries The first (1750-1830) gave us steam power and railroads Internal combustion engine, running water, indoor toilets, communications and much more Second (1870-1900) gave us electricity and everything with it Computers, mobile phones and the like Third is the digital revolution The iPad and iPhone are just improvements on things we already had Gordon's argument is that as impressive as the third revolution has been in terms of productivity it cannot hold a candle to the electrical revolution Calls the current US economy "the great stagnation" Believes that new technology will lead to further growth Tyler Cowen believes the US can recapture the economic momentum Why America's economic growth may be over: Began fading by 2004 Now the benefits of tech innovation flow more to leisure activities such as social media and smartphone apps John Fernald's research found that the information technology boom of the 1990s helped businesses become more efficient until about 2003
Image of page 45
Image of page 46

You've reached the end of your free preview.

Want to read all 99 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture