100% tevredenheidsgarantie Direct beschikbaar na betaling Zowel online als in PDF Je zit nergens aan vast
logo-home
EC201: Macroeconomics Lecture Notes from T2 €12,98   In winkelwagen

College aantekeningen

EC201: Macroeconomics Lecture Notes from T2

1 beoordeling
 40 keer bekeken  2 keer verkocht
  • Vak
  • Instelling

These are very detailed lecture notes for EC201 macroeconomics from the University of Warwick's economics course. They were made by a student who scored a first in 2nd year exams.

Voorbeeld 4 van de 46  pagina's

  • 23 november 2023
  • 46
  • 2022/2023
  • College aantekeningen
  • Rp
  • Alle colleges
  • Onbekend

1  beoordeling

review-writer-avatar

Door: llaw • 8 maanden geleden

avatar-seller
Economic Growth: A Model of Production W1

Facts and Questions about Growth

- GDP: main measure of aggregate economic activity. The market value of final goods and services
produced in an economy each year.

Measuring the Economic

- PPP-Adjusted Real GDP per capita
o When computing changes over time, we fix prices at a given baseline year (‘real’)
o When comparing different countries, we fix a set of international prices (‘PPP’). This is
useful since prices are generally higher in rich countries.

Growth Over the Very Long Run

- Key messages:
o Sustained increases in SoL are a recent phenomenon.
o Economic growth emerges in different places at different times.
- Modern Economic Growth:
o From 1870 to 2008: US real GDP/capita increases by 15x
o Other observations but no real important theory.

Importance?

- GDP facilitates cross-country comparisons
- It’s also a measure of productive capacity -> which is a crucial factor for improvements in
development (I.e., health and other welfare-related dimensions)
- The correlation between GDP/capita and HDI is strong and positive

Model of Production. (Video 2)

Rationale: Explain the differences in economic performance between countries

Environment of the Economy

- Parameters:
o Single, closed economy
o 1 consumption good
o Households are exogenous
o Two inputs: Labour (L), and Capital (K)
o Production function: how much output (Y) can be produced given any number of inputs
- Cobb-Douglas Production Function
α 1−α
Y=A K L
- ( Y ) is the output, ( ( K ) ∧( L ) )are the production inputs, α parameter controlling the importance of
capital (vs labor) in production, A is the total factor productivity (tech) (TFP)
- 3 ways to achieve economic growth (increase in Y)
o Capital accumulation

, o Labor force increases
o Technological changes
- Note:
o The function is strictly increasing in both inputs (MPK and MPL > 0)
o There is decreasing marginal products (2nd derivatives of K and L)
o There are constant returns to scale
- Under CRS, dividing the output by the number of workers, we obtain:

Y
L
=F
K
L( )
,1

- We can write output per worker as:

y=f ( k )
Y K
- Where y= ∧k =
L L
- Lowercase letters denote per worker quantities

Continued:

- We want to maximize profits
- π=tot . rev .−tot . c ⇒ π= pY −rK −wL
- Max. Profit.:

max ❑ F ( K , L )−rK −wL
K ,L

- Maximize profit by choosing capital and labor levels. We look for the FOC of the profit function
s.t K & L. Essentially calculate MPK=MCK and MPL=MCL
- The FOC reveals that the marginal products are equal to the marginal cost.

Households

- Supply K and L and demand Y
- If we assume that the supply of K and L is exogenously given this implies the supply curve of
each is perfectly inelastic (vertical)
- Also, if households demand the entire production, all quantities will be bought up.

General Equilibrium

- Eq.: value of all endogenous quantities and prices s.t all markets clear
- Market for K, L and the output produced Y.

, -
- To solve for the model, we will resolve a system of 5 equations:
¿
1. K =K
¿
2. L =L
3. Y ¿ = A K ¿α L¿1−α
¿
4. r =α A ¿ ¿
¿
5. w = ( 1−α ) A ¿ ¿

Observations

- Firms employ all the supplied capital and labor
- The eq. Wage is proportional to output per worker
- The eq. Rental rate is proportional to capital ratio
- Firms make 0 profits <- Perfect competition

Development Accounting (Video 3)

Applications of the Model

- Idea: use the production function to account for cross-country differences in GDP per capita.
- We have y ¿ = A k α
- Research Sub-Q:
o How are cross-country differences in y ¿due to cross-country differences in k
o Can the model explain the data if we set A (Level of prod.) for all countries

Implementation:

- National Accounts and other sources provide k estimates for many countries.
- To calibrate α , we use the fact that C-D functions and competitive markets imply:

r ¿ K ¿ α ∧w ¿ L¿
= =1−α
Y¿ Y¿
- Where α is the capital share of income, and 1−α is the labor share of income
- This is an example of calibration: setting model parameters to match empirical facts

Applications and Key Results

, - If the TFP is normalized to 1 for all countries, the model under-predicts cross-country gaps in
GDP/capita
- Observed cross-country gaps in k are not large enough to explain observed cross-country gaps in
y
o TFP should be wildly different across countries
o We can compute the country specific TFP to match differences in GDP

What is TFP?

- In the model (TFP) is represented by the parameter A
o Also called the technology parameter
- Empirically, it is the portion of output not explained by the number of inputs used in production
- TFP -> measures residual growth in total output of a firm, industry or national economy, not
explained by the accumulation of traditional inputs (K & L)

Understanding TFP differences

- Output differences between the richest and poorest countries
o Differences in capital per person explain 1 third of the difference
o TFP differences explain the remaining difference
- Possible explanations: tech; human capital; institutions; cultures; capital misallocation

Voordelen van het kopen van samenvattingen bij Stuvia op een rij:

Verzekerd van kwaliteit door reviews

Verzekerd van kwaliteit door reviews

Stuvia-klanten hebben meer dan 700.000 samenvattingen beoordeeld. Zo weet je zeker dat je de beste documenten koopt!

Snel en makkelijk kopen

Snel en makkelijk kopen

Je betaalt supersnel en eenmalig met iDeal, creditcard of Stuvia-tegoed voor de samenvatting. Zonder lidmaatschap.

Focus op de essentie

Focus op de essentie

Samenvattingen worden geschreven voor en door anderen. Daarom zijn de samenvattingen altijd betrouwbaar en actueel. Zo kom je snel tot de kern!

Veelgestelde vragen

Wat krijg ik als ik dit document koop?

Je krijgt een PDF, die direct beschikbaar is na je aankoop. Het gekochte document is altijd, overal en oneindig toegankelijk via je profiel.

Tevredenheidsgarantie: hoe werkt dat?

Onze tevredenheidsgarantie zorgt ervoor dat je altijd een studiedocument vindt dat goed bij je past. Je vult een formulier in en onze klantenservice regelt de rest.

Van wie koop ik deze samenvatting?

Stuvia is een marktplaats, je koop dit document dus niet van ons, maar van verkoper joebloggs123. Stuvia faciliteert de betaling aan de verkoper.

Zit ik meteen vast aan een abonnement?

Nee, je koopt alleen deze samenvatting voor €12,98. Je zit daarna nergens aan vast.

Is Stuvia te vertrouwen?

4,6 sterren op Google & Trustpilot (+1000 reviews)

Afgelopen 30 dagen zijn er 73918 samenvattingen verkocht

Opgericht in 2010, al 14 jaar dé plek om samenvattingen te kopen

Start met verkopen
€12,98  2x  verkocht
  • (1)
  Kopen