Macro Lecture 6 (S2005)

1
Macro Lecture 6 (S2005)

• Production and growth
• Last time short-run (Keynesian) analysis
• Long-run analysis
• Reading Ch.25 and Ch.26
• Next time Ch.29

2
Motivation

• What we learned from TV
• How much saving will you need if you retire at
  50?
• From text
• USA
• GDP growth rate (annually) 2
• Average income doubles every 35 yrs (why?)

3
Motivation (continued)

• From text
• East Asian countries
• (e.g., Singapore, South Korea, Taiwan)
• Average income growth rate 7
• Average income doubles every 10 yrs (why?)

4
Productivity

• Definition
• the quantity of goods and services that a
• worker can produce for each hour of work
• Factors that determine productivity
• 1.Physical capital
• 2. Human capital (to be continued)

5
Productivity (continued)

• Factors that determine productivity (pp.541-3)
• 1.Physical capital
• 2.Human capital
• 3.Natural resources
• 4.Technological knowledge
• Analogy -- 2 4 time to read a book (for
• society)quality of the book (in society)

6
Are Natural Resources a Limit to Growth?

• P.544
• No.
• Carry the intuition to other issues
• such as
• Environmental concern
• Recycling and trash-collecting procedure
• Storage problem at library
• Mailing cost at work place

7
pp.548-9 Becker in Business Week (1999)

• Bribe third world parents to keep their kids in
  school
• Child-labor competition cost-effectiveness
  free trade

8
Important Announcement (for IB)

• Final exam
• Text Chapters 23, 24, 25, 26, and 29
• Lectures
• 140 pm - 300 pm, Thursday, June 23, 2005
• Open books/notes exam
• All rules in midterm exam apply here
• Materials in midterm exams (IB and IA) about 30
• Attn IB -- Have a productive summer do not
  forget about ????

9
Important Announcement (for IA)

• Final exam
• Text Chapters 23, 24, 25, 26, and 29
• Lectures
• 410 pm - 520 pm, Wednesday, June 22, 2005
• Open books/notes exam
• All rules in midterm exam apply here
• Materials in midterm exams (IB and IA) about 30
  
• ????? ??? Friday, June 25, 2005 ??

10
Reading guide (policy-oriented) a simple
example

• Government budget deficit increases market
  interest rates, why?
• Ans p.577 figure 4 (Ch.26)
• Borrow to finance
• Crowd out loanable funds available to firms and
  households
• Supply of loanable shifts inward (see next slide
  too)

11

• Mkt for loanable funds a financial mkt
• Supply of loanable funds? Saving!
• Demand for loanable funds? Investment!
• What if a budget deficit occurs?
• Government borrows to finance,
• hence supply curve shifts to the left
• Conclusion higher r, crowding out I.