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Macro Economics

by: Cassie Lee

Macro Economics Econ 401

Cassie Lee

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Economic growth
Marco Vincenzi
Class Notes
Econonomic, growth
25 ?




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This 3 page Class Notes was uploaded by Cassie Lee on Thursday October 6, 2016. The Class Notes belongs to Econ 401 at University of New Hampshire taught by Marco Vincenzi in Fall 2016. Since its upload, it has received 2 views. For similar materials see Macroeconomics in Economics at University of New Hampshire.

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Date Created: 10/06/16
Lecture 9 Chapter 11 October 4, 2016 LONG­RUN ECONOMIC GROWTH: THE SOLOW MODEL   Solow: productivity growth is the key factor in explaining long­run  economic growth.  Labor productivity: the quantity of goods/services that can be produced by  one worker;  o Real GDP per hour worked (Y/L) corrects for fluctuations in the  length of workday.  o The average American in 2010 was 8 times more productive than one  in 1900.   Physical Capital: machinery and equipment used to produce other  goods/services.  K o Capital stock (K): the total amount of physical capital L available in a country;  o Increases in capital per hour worked (K/L) lead to movements along the per­worker production function, holding the level of  technology constant;  o The law of diminishing returns: output increases by smaller additional amounts.  Lecture 9 Chapter 11 October 4, 2016 Per Worker Production Labor Productivity Y $175 L  $150  Production Function Y=A x F(+K,+L)                                                     Y                   K=, L=  Technological change: an increase in the quantity of  output, K given the same $10,000 $20,000 L Physical inputs $30,000 Capital                                      Solow’s                   Technological change is the “residual” portion of growth that cannot be  explained.  1. Better machinery and equipment: improvements in computers, machines, etc.;  2. Increases in Human Capital: knowledge and skills accumulated by workers;                                                     Assembly Line, Lean Production 3. Better management and organization of production: “the visible hand”.   Technological change shifts up the per­worker production function. Labor Productivity Y L Lecture 9 Chapter 11 October 4, 2016  HOW TO PROMOTE TECHNOLOGICAL CHANGE? NEW  $175 GROWTH THEORY    Innovation                             Competition  Can Schumpeter’s “Creative Destruction” explain the fall of  the Soviet Union?  o Competition provides entrepreneurs the incentive to  innovate products/processes.  o Do K Solved  $30,000 L Physical Y Soviet Union Y Capital United States L Problem 11.2.  L o Market economy Competition in the united states. o In Soviet Union they did not have a competitive market therefore  didn’t do well. Romer: the accumulation of knowledge is a key determinant of economic growth.  o How to measure it? Expenditure on Research & Development. o Free­riding: firms benefit from R&D they did not pay for → lower amount  of R&D.  Government policies that promote the accumulation of knowledge:  Protecting intellectual property rights: patents and copyrights;  Subsidizing research and development: tax benefits and NASA;  Subsidizing education: student loans and support to public colleges.


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