Chapter 6 - Long Run Economic Growth

Question 1

According to the growth accounting approach, what are the three sources of economic growth? From what basic economic relationship is the growth accounting approach derived?

Answer 1

g

Question 2

Of the three sources of growth identified by growth accounting, which one is primarily responsible for the slowdown in U.S. economic growth after 1973? What explanations have been given for the decline in this source of growth?

Answer 2

g

Question 3

True or false? The higher the steady-state capital– labor ratio is, the more consumption each worker can enjoy in the long run. Explain your answer.

Answer 3

g

Question 4

What effect should each of the following have on long- run living standards, according to the Solow model?

a. An increase in the saving rate.
b. An increase in the population growth rate.
c. A one-time improvement in productivity.

Answer 4

g

Question 5

What types of policies are available to a govern- ment that wants to promote economic growth? For each type of policy you identify, explain briefly how the policy is supposed to work and list its costs or disadvantages. How does endogenous growth theory possibly change our thinking about the effectiveness of various pro-growth policies, such as increasing the saving rate?

Answer 5

gg

Question 6

What two explanations of productivity growth does endogenous growth theory offer? How does the pro- duction function in an endogenous growth model dif- fer from the production function in the Solow model?

Answer 6

g