Economics theorists macro

Question 1

Lewis model of industrialisation

Answer 1

Instead of supplying agriculture goods, a country should supply manufactured goods. This may lead to an increase in investment into the manufacturing sector and therefore leading to mass consumption

Question 2

Dambisa Moyo

Answer 2

Poor countries become over-dependent on AID and cannot efficiently distribute the aid across the country. It also encourages corruption of hierarchy.

Question 3

Douglas North

Answer 3

Less developing economies have financial institutions which means that there is less availability to borrow or save. It also restricts borrowing because poor countries cannot provide collateral to secure loans

Question 4

Harrod Domers savings equation

Answer 4

Savings/Capital output ratio
When a firm saves, they have more money to invest. This increase in investment allows more firms to invest in growth and development

Question 5

The malthus theory of population

Answer 5

The theory of exponential population may eventually exceed food supply

Question 6

The prebisch-singer hypothesis

Answer 6

PPD goods are price inelastic. This means that when world income rises, PPD products won’t rise because they are not rising in demand but, manufactured goods will increase which means that they will import more manufactured goods, worsening terms of trade

Question 7

SOLOWs growth model

Answer 7

This is an economic measure of output. It assumes that labour and capital is fixed. The factors are population rate, savings and technological advances

Question 8

ROSTOWs model of development

Answer 8

This shows the development of an economy from the exploitation of PPD and then industrialising and exploiting the manufacturing sector in the long-run

Question 9

Dutch disease

Answer 9

When you over-specialise in an industry which means that the industry you specialise in does well however, this can push up the exchange rate, because there is an increase in imports, increasing the demand for the pound and worsen other industries

Question 10

The resource curse

Answer 10

When a country specialises in the overproduction of the resource it has a factor abundance in which could cause other industries to suffer

Question 11

De soto’s property rights

Answer 11

This states that poorer, undeveloped economies cannot benefit from property rights and therefore their assets are not legally protected. This means that their assets are dead capital

Question 12

The environmental kuznets curve

Answer 12

Economics development initially leads to a deterioration of the environment however, once a country industrialises, they can invest in improving the environmental stance

Question 13

Mundell flemings optimal currency area

Answer 13

This is the maximisation of economic efficiency between countries.
This is based of:
- Integrated labour market
- Flexibility of wages
- Redistribution of wealth
- Similar business cycles

Question 14

Ohlin Heckshlers factor abundance model

Answer 14

Specialising in the trade of what they have a high resource of.
They can have a comparative advantage in this and benefit from economies of scale

Question 15

What is the Marshell-lerner condition

Answer 15

A devaluation of the currency improves the balance of payments only if the sum is greater than one
Equation: PEDx + PEDy > 1

Question 16

Ha joon chang

Answer 16

Countries should use protectionism to develop

Question 17

Krugmans new trade theory

Answer 17

The ability of a country to produce a particular product at a lower opportunity cost than its trading partners, due to different natural resources and other factors.

Question 18

Fishers quantity theory of money

Answer 18

change in price can be related to a change in the money supply
​

M×V=P×T
where:
M=money supply
V=velocity of money
P=average price level
T=volume of transactions in the economy
​

Question 19

Marshell lerner condition

Answer 19

This is when for the current account to improve, the PED of imports have to be above 1. If businesses are in forward contracts, it is unlikely in the short run the current account will improve.

Question 20

Gary Becker’s human capital theory

Answer 20

This stated that the government should invest in education to improve the skills of labour and increase productivity. This will help to develop an economy.
The government should fund research and development and fund childhood education.
- Technological advancements means that the knowledge that people acquire in school is becoming obsolete more quickly than before

Question 21

Paul Krugmans gravity model

Answer 21

This states that countries near each other should trade with one another

Question 22

Wagners law
What is an EV?

Answer 22

This is that public sector goods are income elastic and so when national income increases, so does public expenditure on healthcare and education etc
- some goods are inferior goods like public transport

Question 23

What is Pareto efficiency?

Answer 23

Due to perfect competition, being in a competitive market means that a firm is fully maximising efficiency and nothing can be changed without making someone worse off

Question 24

Tragedy of the commons

Answer 24

This is that when a common good is found, it will become over-utilised. This means that there will eventually be a depletion of resources

Question 25

The Diderot Effect

Answer 25

Dictates that once you acquire something new, it will trigger a chain reaction that pushes you to start making more purchases.

Question 26

What is Ricardian equivalence?

Answer 26

An attempt to stimulate the economy with government spent that is debt-financed will not benefit an economy because firms and consumers understand that this will lead to higher taxes in the future

Question 27

Fisher’s quantity theory of money

Answer 27

This states that an increase in injections into the economy could increase money supply as more money is flowing around the circular flow of income. This increases price level as more money is chasing the same number of goods and services leading to inflation