Chapter 8: Growth, Capital Accumulation, and the Economics of Ideas: Cathcing up vs the Cutting Edge Flashcards

1
Q

What are the two types of growth?

A
  1. Catching up

2. Cutting edge

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is Catching up growth?

A

Poor countries start by adopting ideas, technologies, and methods of management developed by rich countries

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is Catching Up growth usually motivated by?

A

Capital accumulation and adopting ideas

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is cutting edge growth?

A

Rich countries are usually the developers of new ideas, technologies, and methods of management

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What does this equation mean?

Y = F (A, K, eL)

A

GDP is a function of technology, physical capital, and labor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What does A symbolize?

A

Technology

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What does K symbolize?

A

Physical capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What does eL symbolize?

A

Labor

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What does the Solow Growth Model say about Y = (K)?

A

As K (physical capital) increases, GDP will increase

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the Iron Logic of Diminishing Returns?

A

More capital, K, creates more output but at a diminishing rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the marginal product of capital?

A

The increase in output caused by the addition of one more unit of capital; the marginal product of capital diminishes as more and more capital is added

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What does this mean ?

Y =(√K)

A

Output is the square root pf physical capital input

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

How do we calculate GDP for any level of physical capital?

A

Y = (√K)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is capital?

A

Output that is saved and invested rather than consumed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What does the Greek letter gamma ( ℽ ) represent?

A

The fraction of output that is saved and invested in new physical capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How do we right the fraction of output that is saved and invested? ( ℽ )

A

amount invested / total output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How do we represent the fraction of output that is consumed?

A

1 - ℽ

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How do we represent the fraction of physical capital that depreciates?

A

𝛿 = amount depreciated / capital stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the steady-state level of physical capital?

A

Where the physical capital stock is neither increasing nor decreasing

20
Q

If depreciation is greater than investment, the stock of K will increase.

True or False?

A

False

21
Q

The greater the capital stock the greater the________.

A

depreciation

22
Q

Capital increases or decreases until investment = ?

A

depreciation

23
Q

What happens when investment > depreciation?

A

Physical capital stock grows and the output is bigger the next period

24
Q

What happens when investment

A

Physical capital shrinks and output is smaller next period

25
Q

What happens when investment=deprecation?

A

Physical capital stock and output remain the same. This is called steady-state

26
Q

What are diminishing returns to physical capital?

A

As an amount of an input rises, its marginal product falls

27
Q

Can long run economic growth solely be due to capital accumulation?

A

No

28
Q

What does an increase in the investment rate do to a country’s steady state level of GDP?

A

It increases it

29
Q

When a country’s capital stock is below the steady state, the country will grow more rapidly because it will invest in capital that has _________

A

a high marginal product

30
Q

What is the one thing that can keep the economy growing in the long run?

A

Technology/better ideas

31
Q

What is conditional convergence?

A

The tendency- among countries with similar steady state levels- for poorer countries to grow faster than richer countries and thus for poor and rich countries to converge in income

32
Q

An increase in technological knowledge mean that we can get more__________

A

output from the same amount of input

33
Q

The development of better ideas shifts the production function _________

A

upward

34
Q

Better ideas also increase capital accumulation.

True or False?

A

True

35
Q

Who primarily researches, develops, and implements new ideas for increasing output?

A

Profit-seeking firms

36
Q

What are two ways that individuals can protect their intellectual property?

A
  1. Patents

2. Copyrights

37
Q

What do patents allow for firms in terms of profit?

A

It allows them to operate as a monopoly for 20 years so they get all of the profit

38
Q

What is a contributing factor to the underproduction of new ideas?

A

Spillovers

39
Q

What does non-rival mean?

A

When one person’s use of the good does not reduce the ability of another person to use the same good

40
Q

In a larger market the incentive to research and develop new ideas ______

A

increases

41
Q

Where is the profit maximizing amount of private investment found?

A

Where the private marginal benefits just equal the private marginal costs

42
Q

Where is the optimal social investment in R&D found?

A

Where the social marginal benefits just equal the marginal cost

43
Q

What is the government’s role in improving the production of new ideas?

A

They provide subsidies and tax breaks for R&D expenditures (universities etc.)

44
Q

What is the formula to determine technological progress (A)?

A

A=Population * Incentives * Ideas per hour

45
Q

The Solow Method tells us that long term economic growth is best explained by _______

A

better ideas/technological advancements