- HW #4 due Wednesday- Extra office hours: Thursday 5-6:30 in 6203 Social Science- The upcoming midterm will cover chapters 6,7,8,9, and some of 10--------------------------------------------------------------------------------------------------------------------------------(Long run economic growth continued)(Methods of changing the level of capital stock continued)- Growth in human capitalo Labor productivity increases (because people are able to do more with more training/knowledge)o Education is important but not everyone should get the same education (some people should go to a technical college, other to a liberal arts college, etc.)(How to increase economic growth continued)- Economic growth due to change in technologyo Increasing technology increase in labor productivity increase in living standardsAggregate production function 2 (K, tech and human capital2 are constant)Real GDP, or YY2BAggregate production function 1 (K, tech and human capital1 are constant)AY1L1Q of Lo E.g. steam engines, computers, etc.o Research and development (aka R & D) used to invent new technology- Costs of economic growtho One way to increase economic growth is to lower taxes budgetary costs Must decide what programs to cut Else if you don’t cut programs, the deficit will increase There is a redistribution effect- people will pay less but will be hurt by program cutso Another way to increase economic growth is to lower current consumption consumption costs You are unable to buy all of the items you want/need nowo Another way to increase economic growth is to have people work more This decreases the amount of free time we have and time we could spend with our familyo Another way to increase economic growth is to sacrifice other social goalsReal GDP, or YTechnology increaseY2BAY1L1Q of L E.g. we could ignore environmental degradation (like in China, where there is a lot of pollution)- Economic growtho Books: Jeffrey Sachs- The End of Poverty, Sachs claims that we could end poverty if every country donated a small percentage of its yearly GDP William Easterly- The White Man’s Burden, Easterly counters Sachs’ argument and addresses issues of economic developmento A problem with countries that struggle with economic growth is poor infrastructure Political instability Poor law enforcement Corruption Adverse government regulation (e.g. red tape and bureaucracy)END OF MATERIAL COVRED IN MIDTERM 2------------------------------------------------------------------------------------------------------------------------------------------Savings, Investment and the Financial System- Financial SystemSavers/Lenders ----$-----> Financial Markets ----$----> Spenders/Borrowerso Financial markets E.g. mutual funds Pension funds Life insurance Banks Credit unions S & Ls Etc.o Savers/lenders Sources of funds- Currently savingo Households o The government Accumulated savings Wealth Capital inflows- Foreign saving Supply of fundso Spenders/borrowers Uses of funds- Investmento Businesseso Households- Government Demand for fundso What the financial system does Lowers transaction costs (it’s tedious for an individual to decide whether to lendsomeone money, and banks have more access to
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