Ch 4 - Endogenous growth and poverty traps

Question 1

What are endogenous growth theories?

Answer 1

Theories in which long run growth is determined inside the model

Question 2

What the assumptions of the AK model?

Answer 2

Constant returns to capital, capital accumulation results in sustained growth, capital is the only factor of production, capital output ratio is fixed

Question 3

What are the conclusions of Ray’s model of human capital?

Answer 3

Countries with higher savings rates, lower pop growth and lower dep continue to grow faster even in the steady state

Question 4

Why does no one firm invest in R and D under perfect competition?

Answer 4

Because once innovation is available, investors can easily copy and beat the innovator in price, leading to negative economic profits for the innovator

Question 5

What are externalities?

Answer 5

Someone’s choice affects the pay off a third party. It relates to the the level of satisfaction/utility

Question 6

What are complementarities?

Answer 6

Form of externality that relates not to the level of utility of others but to the ranking of alternatives they have. It relates to the increased relative preference of third parties

Question 7

What are the common roots to poverty traps?

Answer 7

Lack of individual assets or skills, poor institutions, coordination failure