Economic Growth Models Flashcards

Flashcards reviewing key vocabulary and concepts from lecture notes on economic growth models, including the Solow and Romer models.

Solow Model

Economic model simplifying reality to focus on capital accumulation for growth but failing to explain sustained growth.

Romer Model

Theoretical framework emphasizing the role of ideas and knowledge accumulation in driving sustained economic growth.

Objects (Goods)

Tangible items subject to scarcity and diminishing returns.

Ideas (Instructions)

Non-rivalrous instructions for arranging raw materials, offering limitless possibilities for economic utility.

Nonrivalry

Consumption of a good by one person does not reduce the amount available for others; a key characteristic of ideas.

Increasing Returns

Generation and utilization of ideas lead to a disproportionate increase in outputs compared to the increase in inputs.

Invisible-Hand Theorem

Adam Smith's concept suggesting perfectly competitive markets lead to optimal outcomes in the economics of objects.

Production Function (Romer Model)

Equation 6.2: 𝑌𝑡 = 𝐴𝑡𝐿𝑦𝑡, representing output produced using the stock of existing knowledge and labor input.

Growth Accounting

Method to dissect the sources of economic growth in an economy over time.

Balanced Growth Path

State in the Romer model where growth rates of all endogenous variables remain constant.

Growth Effects

Permanent increases in the rate of growth of per capita GDP due to changes in parameters.

Level Effects

Short-term increases in per capita GDP, after which the economy returns to its original growth rate in the long run.

TFP (Total Factor Productivity)

The portion of output not explained by the amount of inputs used in production. Represents the effectiveness with which inputs are used.