Study Guides (238,575)
Canada (115,213)
Economics (558)
ECO100Y1 (110)
Jack Carr (6)

ECO 360 Final Exam Study Guide

15 Pages
Unlock Document

University of Toronto St. George
Jack Carr

Solow, denison, Krugman, Baumol, Lewis Solow-]o}l]L} }LLLZZ]]LZ]ZK}o7oZ}7]}ZL[o]LZ}}Z ZL}o}2] o progress occurs. The endogenous growth theory explains it -an economy will always converge towards a steady rate of growth through tech. progress and labor force growth -Total factor productivity is contribution to output that is not from labor and capital, TFP drives labor productivity by 80%, remains is due to higher capital ratio through time (but there is diminishing returns to capital) -only 12.5% of growth in output per capita in the 1909-1949 period in the United States was due to factor accumulation -- leaving 87.5% to be explained by technical progress! This is a bit dispiriting as it implies that the overwhelming majority of the growth that is empirically observed is outside the explanatory power of the Solow-Swan growth model! -difference between rich and poor countries explained by rich countries investing more and have lower population growth rate, more capital per worker, higher labor productivity -per capita growth will eventually cease as dimishing returns to capital set in, tech. progress can offset the tendency for marginal product of capital to fall -tech. change increases labor productivity and increases in labor productivity generate higher standards of living, greater real wages and profits and larger gov;t tax revenue Lewis 1) -undistorted competition in the product market - in order to have a healthy economy, the most productive firms should win - more productive firms expand and take market shares,overall productivity of the country increases. - less productive firms go out of business or increase productivity. -Competition makes productivity increase, -less intense competition, slower productivity growth. -Market distortions explain difference between GDP per capita of US and other rich countries 2)-Innovations, allow innovators to make more profits, invest more, take market share away from competitors, profits will return to normal after a period, in which the level of productivity is at a higher level 3)-Too much government influence restricts productivity growth -Protection of less productive firms is a regular occurrence in industrial countries such as France, Germany and Japan. -best practice retailers are prevented from expanding as fast as they can thus, productivity growth is slower. -9} ]L2}oLZK}KL}[]oZ]ooZ]L }L}K] 2}Z: -Too much government influence has proved that old factories and companies are protected against bankruptcy while they keep productivity at a minimum. Unsuccessful owners be allowed to fail and workers have to find new jobs. -Product market distortions are much more important than labor market distortions. -govt tax heavily on legitimate business as part of economy is informal -If able to keep wage rates down, higher profits, the profits are invested back for higher economic growth more investment(increase in capital equipment), industry expands, more labor demand -Labor force leaving agriculture for higher pay -labor management relationship is different in Japan -lifetime labor vs high labor turnover in US -the agricultural sector provides unlimited supplies of labor to industrial sector and pays a subsistence wage, as the industrial sector expands, employment and output increase, share of profits increase -eventually surplus labor is exhausted. Wage rate rises, real wage rise with increasing productivity Krugman-Increasing GDP per capita www.notesolution.come) 1) Put larger portion of the population to work-works for a while if a substantial fraction of population is LKo}7}Z} ]o ZL2]L2ZL2}Z7 L]L Z}o]}LKo}} L[ increase it to 105%. 2) Put a smaller fraction of output aside as investment for the future and devote more productive capacity to manufacture goods for current consumption-can consume more for a while by investing less, will cut into ability to consume later 3) Can import more without selling more-have to borrow or sell assets to pay for additional imports 4) can get a better price for exports so able to afford more imports-how to persuade foreigners to pay more for goods, only way is to make the goods better, productivity Krugman-1973, magic went away, economic growth is magic-labor productivity is magic as well 1991-avg American family income went up by 5%, got that from working longer hours Two types of economists-Policy Entrepreneurs-offer politicians simple solutions to complex problems, analysis are flawed-(thurow, prestowitz), wrong solutions Policy entrepreneurs said countries must be competitive, is Canada going to be competitive, Krugman says countries are not competitive, industries within the country is competitive Policy entrepreneurs-countries with lower productivity will not be competitive, will fall backwards, Krugman-look at comparative advantage, if countries engage in trade with comparative, both achieve strong trade Economic war between US, Japan and Germany-Thurow, US decided to lose the battle Krugman-problem between communitarian and individualistic capitalism -suppose US demands Japan to increase imports from US, Japan retaliates, US counters Solution: raise labor productivity in US, increase R&D funds, improve education, encourage US households to save -Depression, runaway inflation, and civil war can make a country poor, but only productivity growth can make it rich -only way in the long run to increase standard of living is to increase labor productivity -in 1967, Fortune magazine surveyed American Industry, how much will real wage increase in the next 25 years, real wage should increase 150%, ZKZ^ZK[ZK]Zl of extrapolation from past data Why did productivity growth slow down? 3 different stories that account for slowdown in US 1) Technological factors-no new basic technologies, except computers in the IT sector is coming forward, but it takes a long time for a major new technology to have a major impact-industrial revolution-textile innovation, takes years for real wage to increase 2) Sociological explanation-decline in education standards in the US, education standards was falling, motivation is not the same, between 1960 and 1990, public school students increase by 10% in school, increase in teachers in the same period 70%, the end product, high school system is still poorly educated, 3) Political explanation-Z]2ZZ7]222}[]L}oKL7o}Z]L L]Z}LLZ}Z]2Z taxes become more risk averse, workers choose leisure time, spend minimum time at job, more regulation-anti- labor productivity, more hours for the same task How does Krugman bring the magic back? US had 2 key problems-low productivity and rising poverty(income distribution problem) -2}[ZZ}oL}} } ZZ}oKZ]Zo7Z2}[ }o9K]]22o]}L7 ]7]K} education, improved funding for R&D, encourage savings - }L[Z]o]}]K}]ZZL}o]]L2}]KLZ}L]Z]o]}]Z} worker(labor productivity) Denison
More Less

Related notes for ECO100Y1

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.