Economic growth & development

Question 1

Harrod - Domar

Answer 1

1. Model:
   Net investment spending increases capital stock and raises potential
   income level - investment is vital, Increased consumption arises from increased income, Balanced growth = income growth at which full employment of
   resources is maintained over time → economy must grow to maintain
   full employment
2. Unstable economy - the probability that the investment growth = the
   productive capacity growth is very small
3. Policy in developing countries

Question 2

Schumpeter

Answer 2

1. The key process in economic change is the introduction of
   innovations and the central innovator is the entrepreneur. Even though inventions and discoveries occur continuously, however, formation into
   innovations by entrepreneurs happens in waves. Business fluctuations therefore
   represent the process of adaptation to innovation.
2. Creative destruction - change in tech always new to old to new
3. if creative destruction is an inevitable part of dynamic
   capitalism, then monopolization is of little concern. New innovations will make old technologies of monopolist become obsolete

Question 3

Solow

Answer 3

1. Growth theory:
   In short run there are decreasing returns, while in long run there are constant
   returns. Steady State: actual investment = balanced investment. Balanced investment: population growth = capital growth.
2. Long term growth rate= population growth rate+ level of technology. Hence, improvements in standard of living solely due to technological
   progress
3. Sources of growth: most of growth due to technical progress → “growth
   accounting”