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Growth Accounting 1
Transcript of Growth Accounting 1
Economic Growth is the % increase in real GDP (per capita)
intensive vs extensive growth
theoretical discussion uses potential rather than actual output
full employment and the natural rate of unemployment
long run - upward trend
short run - boom and bust
Thomas Malthus 1766 -1834
That the increase of population is necessarily limited by the means of subsistence,
That population does invariably increase when the means of subsistence increase, and,
That the superior power of population is repressed by moral restraint, vice and misery.
Solow suggests that infinite growth is a possibility
National Accounting quantifies the contribution that each component of the economy gives to GDP each year
Growth accounting provides a breakdown of how much each factor of production and technology contributes to the observed overall growth rate of an economy
Everything is built up out of the factors of production
We've already met marginal products
We generally make more stuff when we have more inputs
The Cobb Douglas - workhorse of output functions
So, better levels of technology lead to higher levels of output - Total Factor Productivity
APL depends on TFP and the capital labour ratio
...K/L increasing to...
If we double capital to labour we only get 4 extra output
If we increase technology we get more at every level of K and L
All of this is concerned with levels.
We wish to talk about growth......
If we can figure out alpha we can establish the contribution of each factor to growth
Get the marginal product of labour
Set equal to the real wage rate.... why?
this is the labour share in national output...
... how much of national output is paid in wages...
... wage bill over nominal GDP
So we can estimate alpha from the national accounts ... the value share of capital... roughly 1/3
The change in output, capital and labour are available from the CSO
The Solow Residual - total factor productivity
T->S comes from growth in capital/labour
S->Z comes from growth in TFP