Ch. 21: Long-Run Economic Growth

Question 1

What does Technology Change?

Answer 1

(1) Better/More machinery
(2) increase in human capital
(3) better business organization processes

Question 2

Why are some countries rich?

Answer 2

Theory 1 - Knowledge is exogenous.
Theory 2 - Knowledge is created INSIDE the system
Theory 3 - Knowledge is endogenous & uncertain

Question 3

Theory 1 - Knowledge is exogenous.

Answer 3

a) knowledge is a public good, non-rival & non-excludable
b) so why aren’t all countries rich?

Question 4

Theory 2 - Knowledge is created inside the system.

Answer 4

a) monopolies, oligopolies, gov’t, & unis create knowledge
b) but U.S. doesn’t do as much research as others. Why grow sm?

Question 5

Theory 3 - Knowledge is endogenous & uncertain

Answer 5

Knowledge filtered into good or bad ideas. Failed & bad ideas can turn into successful entrepreneurial ideas with a good return on investment!

Question 6

Why don’t more low income countries experience rapid growth?

Answer 6

1) failure to enforce the Rule of Law (to protect property, contracts, & patents)
2) wars & revolutions
3) poor public education & health
4) low rates of saving & investment

Question 7

Foreign Direct Investment (FDI)

Answer 7

purchase or building by a a corporation of a facility in a foreign country

Question 8

Schumpeterian Innovative Entrepreneurship

Answer 8

introduce new good
introduce new means of production
open new markets

Question 9

3 Characteristics of Risk

Answer 9

1) well defined event
2) sufficient sample size
3) accepted stats procedure to analyze