Chapter 12 Technological Progress and Growth

Chapter 12 Technological Progress and Growth. Section Instructor Nadine A. Dessouky.

Quick Overview. This chapter looks at the role of technological progress in growth. The state of technology ( A ) is a variable that tells us how much output can be produced from given amounts of capital and labor at any time : Y=F(K,N,A) AN is the amount of effective labor ..

Quick Overview. Chapter 11: I = S = sY : In chapter 11: for capital to be constant, investment has to be equal to depreciation of the existing capital stock. Now; technological progress grows overtime by g A Number of effective workers AN increase by g A + g N Thus, maintaining the same ratio of capital to effective labor requires an increase in the capital stock K proportional to the increase in the number of effective labor AN. Also, the depreciated amount of existing capital should be replaced..

Quick Overview. The Balanced Growth Path.

Quick Overview. An increase in the saving rate leads to an increase in the state-state levels of output per effective worker and capital per effective worker until they reach their new steady state level (higher than before). Therefore, higher saving rate causes temporarily increase in the growth rate of Y, Y/N, Y/AN above the steady states levels but in the long run their growth rates return back to their steady state levels of 0, g A , g A +g N respectively..

Quick Overview. Determinants of technological progress Fertility of the research process Appropriability of the research results The role of management, competition and innovations vs imitation The role of institutions Facts of growth.

Sheet 4.

I. Multiple Choice Questions: In the following production function, Y = f(K, NA), suppose A increases by 20%. This 20% increase in A implies that A) the same output can be produced with 20% less labor. B) the effective quantity of labor has increased by 20%. C) output will increase by less than 20%. D) all of the above E) both A and C..

.

K/AN**. Y/AN**. Required Investment ⸜⸜. The Effect of Increase in depreciation /g(A)/g(N).

The Effect of Increase in Saving rate.

3. Use the following information to answer the question(s) below: (1) the rate of depreciation is 10% per year, (2) the population growth rate is 2% per year, and (3) the growth rate of technology is 3% per year. i - Refer to the information above. Which of the following equals the annual growth rate of "effective labor" in the steady state in this economy? A) 2% B) 3% C) 5% D) 10% E) 15% g(AN)= g(A)+g(N) = 2%+3%= 5%.

3. Use the following information to answer the question(s) below: (1) the rate of depreciation is 10% per year, (2) the population growth rate is 2% per year, and (3) the growth rate of technology is 3% per year. ii) Refer to the information above. Which of the following represents the level of investment needed to maintain a constant capital stock (K) in this economy? A) .02K B) .03K C) .05K D) .10K E) .15K It is just the rate of depreciation.

3. Use the following information to answer the question(s) below: (1) the rate of depreciation is 10% per year, (2) the population growth rate is 2% per year, and (3) the growth rate of technology is 3% per year. iii- Refer to the information above. Which of the following represents the level of investment needed to maintain constant capital per effective worker (K/NA) in this economy? A) .02K B) .03K C) .05K D) 0.10K E) 0.15K To keep K/AN constant, this requires an increase in K proportional to the increase in AN g(AN)= g(A)+g(N) Therefore, Level of Investment required to keep K/AN Constant: Required Investment= (⸹+ g A + g N )K= (0.1+0.02+0.03)K= 0.15K.

.

.

4- Which of the following is always true after an economy reaches a balanced growth equilibrium? A) the growth rate of output equals the rate of depreciation B) population growth is zero C) the growth rate of capital is equal to the growth rate of the effective work force D) the growth rate of capital is equal to the savings rate E) none of the above Balanced growth happens when growth rate of effective workers equals growth rate of capital and equals to the growth rate of output = g(A)+g(N).

5. Suppose output per worker in a country has grown at the same rate as technology over for many years. This country's growth would be described as A) "appropriable" growth. B) "balanced" growth. C) "effective" growth. D) "diffuse" growth. E) none of the above.

6. Assume that an economy experiences both positive population growth and technological progress. In this economy, which of the following is constant when balanced growth is achieved? A) K B) NA C) K/N D) Y/NA E) none of the above.

7. Which of the following will cause an increase in the steady-state growth rate of output per worker? A) an increase in the saving rate B) a reduction in the population growth rate C) a reduction in the rate of depreciation D) a reduction in the saving rate E) none of the above At steady state g(Y/N)= g(A) All of the above factors has temporarily effect, not on the steady state.

8. Assume there is a permanent reduction in the rate of technological progress. What is the likely impact on the growth rate and the level of output per worker in the short run and in the long​ run? A) The growth rate of output per worker rises in the short run. In the long​ run, the growth rate approaches a new steady state with a higher growth rate. Output per worker continues to rise over time B) The growth rate of output per worker falls in the short run. In the long​ run, the growth rate approaches a new steady state with a permanently lower growth rate. Output per worker will also decrease over time. C) The growth rate of output per worker falls in the short run. In the long​ run, the growth rate approaches a new steady state with a permanently lower growth rate. Output per worker continues to rise over​ time, just at a slower rate. D) There is no effect on the growth rate of output per worker. Output per worker continues to rise over​ time, just at a slower rate..

K/AN**. Y/AN**. Required Investment ⸜⸜. The Effect of a Reduction in the Rate of Technological Progress.

9. Assume there is a permanent reduction in the saving rate. What is the likely impact on the growth rate and the level of output per worker in the short run and in the long​ run? The​ steady-state growth rate of output per worker will rise. The growth rate of output per worker rises in the short​ run, and in the long run it approaches the higher​ steady-state rate. There is no effect on the​ steady-state growth rate of output per worker. The growth rate of output per worker falls in the short​ run, but in the long run it approaches its original​ steady-state rate. The​ steady-state growth rate of output per worker will fall. The growth rate of output per worker falls in the short​ run, but in the long run it approaches its original​ steady-state rate. The​ steady-state growth rate of output per worker will fall. The growth rate of output per worker falls in the short​ run, and in the long run it approaches the​new, lower​ steady-state rate..

The Effect of a Reduction in the Saving rate. g(Y/N)= g(A) g(A) hasn’t changed, Therefore, g(Y/N) will fall temporarily until it approaches its original steady state in the LR.