01 Introduction to Economic Growth

Question 1

GDP

Answer 1

Gross Domestic Product (GDP)
The value of all goods and services produced in a country in a given year.

Question 2

Control for inflation (___ GDP)

Answer 2

Control for inflation (deflated GDP)

Question 3

GDP: Control for differences in purchasing power

Answer 3

Use PPP (purchasing power parity) exchange rates

Question 4

Non-traded goods are typically cheaper in por countries.

Related effect:

Answer 4

The Penn effect / Balassa-Samuelson effect

Question 5

1,018¹³⁹ =

Answer 5

1,018^​139 = 12

Question 6

Why are some countries rich and others poor?

Answer 6

• Factor accumulation (labor and capital) and productivity
• Technology and efficiency
• Government and institutions

Question 7

Differences due to factor accumulation (figure)

Answer 7

Question 8

Differenes due to productivity (figure)

Answer 8

Question 9

Differences due both to productivity and fator accumulation (figure)

Answer 9

Question 10

Potential concerns with randomized experiments

Answer 10

• Not everything can be randomized (e.g. institutions or culture, ethical problems).
• External validity.
• General equilibrium effects (e.g. spillovers from treatment to control group).
• The Hawthorne effect (behavioural response due to treatment).

Question 11

Assume we know x_t+n and x_t. What is the average annual growth rate?

Answer 11

g = (x_t+n / x_t)^1/numOfYears - 1

Question 12

Continous time

It can be shown that (partial differential equation)

…

where y(0) is the initial value, g is the growth rate and t is time

Answer 12

Continous time

It can be shown that (partial differential equation)

y(t) = y(0)e^gt

where y(0) is the initial value, g is the growth rate and t is time

Question 13

Given y(t) = y(0)e^gt, using the properties of logarithms, we get

ln y(t) =

Answer 13

Given y(t) = y(0)e^gt, using the properties of logarithms, we get

ln y(t) = ln y(0) + gt

The growth rate g is the slope coefficient of e.g. log GDP plotted against time.

Question 14

We denote

Ẏ = ___ = y(0)ge^gt

^y = ____ = g

Answer 14

We denote

Ẏ = δy / δt = y(0)ge^gt

^y = Ẏ / y = g

Question 15

How long does it take for income to double if growht is constant? (Approximation)

Answer 15

t = ln(2) / g = 0.7/g = 70 / % of annual growth