Question

Over the centuries after the plague, output and capital per worker started to rise. Referring again to a suitable diagram (e.g. Blanchard, p.264, fig. 12-2), explain the impact of an increase in technology (consider in the first instance a single step increase). The slope of the output-per-worker line is the return to an additional unit of capital per worker

Answer 1

The output per worker growth would depend on the level of technological growth. After the spread of the pandemic, the total output had declined.

Now the level of technology has led to the rise in the availability of capital per worker and output per worker has also increased significantly.

Following is the diagram:

In the above diagram, the change in technology leads to the rise in the saving function as well as the production functions. Both functions shift upward whereby leading to the rise in the capital per worker and output per worker.

The long-run growth rate of output per worker would depend on the technological change.