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Lecture 11

ECON 222 Lecture Notes - Lecture 11: Human Capital, Skilled Worker, Physical CapitalPremium


Department
Economics
Course Code
ECON 222
Professor
Mike Kennedy
Lecture
11

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ECON222 Lecture 11 Long run economic growth
The determinants of long run living standards:
Saving rate (s)
Population growth rate (n)
rate of productivity growth (rate of growth of A)
Long-run well-being is measured here the steady-state level of consumption per
worker.
Saving rate
Pros:
Higher saving rate leads to higher standard of living, because higher saving rates
means capital per person is increase.
Cons:
Fall in current period of consumption
There is a trade of between current and future consumption
Beyond a certain point, the cost of lost consumption today will outweigh the
future benefits.
What will happen if there is an increase in saving rate?
A temporary spurt in the growth rate: Because y=Y/N, N is growing at a constant
rate n.
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Prof. Kennedy, Lecture 11, slide 6
Long run standard of living and Population growth
Increase in population lower the standards of living
When workforce surge, a large part of output will be used to provide capital to
the new workers.
Absent here is any effect increased population may have on output- increase in
immigration of skilled worker will increase the TFP.
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