Dr Bryan Morgan

Before 10,000 years ago …
All our ancestors were hunter-gatherers.
Palaeolithic technology:

Things are different today…

Modern technology

Another modern reality…
In 2011, just over one billion people lived on less than
$1.25 a day – World Bank
… compared with 1.91 billion in 1990.

The Big Question:
How did we get from here:
To here:
And why have a lot of people been left behind?

Palaeolithic era:
Production = Consumption
Modern era:
Production = Consumption + Saving
Saving

Investment & is used to increase future production and increase knowledge.

Where it started:
Neolithic revolution:
Farming + domesticated animals
Suggested reading: Guns, Germs & Steel – Jared Diamond
Industrial Revolution – 18 th & 19 th centuries
Things really started moving

Some Economic Concepts
 GDP – Gross Domestic Product
 How much a country produces, also a measure of income
 GDP per capita
 average output (or income) per person
 Inflation adjusted dollars
 Life expectancy
 average lifespan of a person born in that year
 low life expectancy is usually due to high infant mortality

GAPMINDER - 1
GDP/capita vs Life Expectancy www.bit.ly/1KWhNl8

How does per capita income increase?
Through increases in productivity .
Productivity = output per employed person
Increases in Productivity
 Technology
 Also division of labour & specialisation then trade
Skilled Workers + Better Equipment
= Higher Productivity

Improvements in productivity increase effective number of workers
+ +

+
Two new effective workers who need equipment (i.e. capital)
12

GAPMINDER - 2
Productivity www.bit.ly/1Jajl56

GAPMINDER - 3
Agriculture as % of GDP www.bit.ly/1NZnGeT

The Importance of Growth Rates
An economy has a GDP of $100b at time t = 0.
After 50 years with an average growth rate of:
2% pa
3.5% pa
7% pa
GDP
50
= $269b
GDP
50
= $558b
GDP
50
= $2946b

How do we increase productivity?
 Improved Technology

R & D
 More Physical Capital
 More Human Capital
Through INVESTMENT
INVESTMENT = SAVING
How much should we save?

Economic Models
Economists use models, simplified versions of reality, to analyse problems, such as how much should we save?
An early model in macroeconomics was used to try to answer this question:
Solow Growth Model
The analysis can be graphical or, as is more common, algebraic.

The Golden Rule capital stock c * = f(k * )

(

+n+g)k * is biggest where the slope of the production function equals the slope of the depreciation line:
MPK = (

+n+g)
MPK-

= ( n+g) c * gold f(k * )
(  +n+g) k * k * gold steady-state capital per effective worker, k *

To find the Golden Rule capital stock, express c * in terms of k * : c * = y *
 i *
= f (k * )

( c * is maximized when
MPK =

+ n + g or equivalently,
MPK
 

+n + g)k *
= n + g
In the Golden
Rule steady state, the marginal product of capital net of depreciation equals the pop. growth rate plus the rate of tech progress.
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Examples of National Saving Rates
Country Name 1970 1990 2000 2005 2010 2012
World
Australia
24.9
32.6
29.5
26.7
22.2
24.0
21.6
24.9
19.7
26.9
21.8
28.3
Brazil
China
20.1
21.4
16.5
19.8
19.2
16.1
28.9
39.1
37.5
47.6
52.1
51.5
Germany
Greece
Indonesia
Japan
Korea, Rep.
Sweden
Thailand
UK
United States
29.0
18.4
23.1
16.3
22.6
16.7
22.5
14.2
23.1
11.3
23.2
23.7
12.1
11.4
12.1
8.3
28.0
14.3
32.3
32.8
29.2
34.3
18.8
40.1
33.4
26.6
23.9
21.0
33.8
15.2
36.4
33.4
32.4
32.1
37.6
27.2
24.2
25.0
25.6
24.9
30.9
21.2
33.8
31.5
30.3
33.4
15.0
21.1
18.1
15.8
14.1
13.0
12.7
15.7
Gross domestic saving (% of GDP)
Gross domestic saving are calculated as GDP less final consumption expenditure (total consumption).
Source: World Bank http://data.worldbank.org/ indicator/NY.GDS.TOTL.ZS
20

Growth isn’t everything…
How about the distribution of wealth?
Distribution of wealth with a country can be measured by Gini coefficient
 Gini coeff = 1
 complete inequality
 Gini coeff = 0
 complete equality

Gini Coefficient for selected countries
70
60
30
20
10
50
40
0

Economics @ UQ
 Microeconomics


Behaviour of Firms & Individuals
Strategy – Game Theory
 Macroeconomics
 Monetary Policy, Fiscal Policy, Growth
 Econometrics (Economic Statistics)
 Development Economics
 Health Economics
 Environmental Economics
 Natural Resources Economics

Economics @ UQ
Economics and …
Finance,
Law,
Commerce (Accounting),
Business (Marketing, Human Resources),
Engineering,
Arts.

Questions and Comments
Thank you