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Econ 330 > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

Solow Model: limitations

A
  1. doesn’t explain LR g
  2. non-convergence (absolute)
  3. solow residual: most g due to tech. g
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2
Q

Solow Model: assumptions

A
  1. CRS: y=f(k,l)
  2. dim. returns
  3. L grows @ n
  4. assume d
  5. tech = exogenous
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3
Q

Solow Model: contributions

A
  1. svgs does not leaf to LG g%
  2. convergence (LDCs catch up)
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4
Q

Solow Model: results

A
  1. sy > (ntd) ^K -> change ^k >0
  2. ^K > 0 => sy incr
  3. g until new steady state
  4. absolute convergence does not hold
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5
Q

Know the puzzles unexplained by Solow.

A

a

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6
Q

Similar to above point, know the advances in general of the new endogenous growth theory

A
  • ideas > things
  • increasing returns to scale: double inputs => output more than doubles
  • (Lucas) human capital => assumes laborers always same but labor improves w/ education & training over time => L increases
  • (Romer) technical progress should be endogenous

=> explains how arises and what it is/comes from

=> explained by 2 notions: 1. Solow residual problem 2. non-converge

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7
Q

Lucas’ model assumptions

A

1) y = f(k,l,hk)
2. assumes external effects

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8
Q

Lucas’ model contributions

A

1) MPKldc > MPKdc
- > dont see bc HK & educ lvls not high enough to absorb R

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9
Q

Lucas’ model results

A
  1. divergence
    - > countries with low HC perform below high HC
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10
Q

Lucas’ model limitations

A
  1. brain drain
  2. how help educ./grow?
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11
Q

Lucas model internal and external effects, and why there is a creation of positive externality

A

why individuals accumulate education:

  1. internal reason: career, pay w/tuition & time => accumulation
  2. external reason: learning contributes to societal knowledge - spillover = extra benefit to societ

=> external effect = positive externality –market failure

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12
Q

Why there is policy intervention for education

A

why individual accumulate education:

  1. internal reasons: career, pay w/ tuition & time => accumulation
  2. external reasons: learning contributes to societal knowledge - spillover=extra benefits to society
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13
Q

How policy intervention will not work for LDCs (brain drain)

A

subsidizing education -> smarter citizens- who may leave

problem = weak labor markets in LDCs => not creating enough employment opportunities (problem not lack of sub. educ.)

LDC response: braindrain > in a drain

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14
Q

Romer: the externality created here.

A
  • ideas are paritally excludable
  • > ex. patents (excludable through patents but you can reverse engineer/ideas leak out and partially b/c people can get idea by studying product)

=> govt. intervention

-> positive externality -> adds to stock of knowledge

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15
Q

How ideas are different than things?

A
  • how things used influence output
  • ideas are:
    1) non-rival - can be used @ same time w/o decr quality
    2) partially excludable - patents (govt intervention) but ideas leak out

=> positive externality

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16
Q

how do ideas arise?

A
  • production lines - experiment w/ slight (“obvious”) changes (i.e. rearrange)
  • profit motive => intentional actions taken by individuals
  • individuals = problem solvers & experimenters EX. mass production/assembly line
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17
Q

incentive to incr ideas in market econ:

A
  • profit

profit from ideas by:

  1. sell better products
  2. comparative advantage
  3. patent new/original idea
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18
Q

Know the broad points of what we have learned from growth models (see Homework 2 where we compare the growth models )

A

a

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19
Q

Marx’s critique of capitalism (false consciousness, etc.)

A
  • alienation -> repeated boring job

=> alienated from self

=> alienated from others

  • false consciousness - workers dont know being alienated, being exploited
    workers: rely on incr salaries for motivation more than other reasons
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20
Q

How Marxist-communist-socialism can appeal to LDCs

A

appeal:

  1. equality & security to a highly unequal & insecure society
  2. soviet union industrialized so fast
  3. centralized power -> authoritarian gov’t possible
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21
Q

How Marxist-communist-socialism can not appeal to LDCs

A

limitations:

  1. corruption: “some are more equal”
  2. not many incentives to work harder -> equal society
  3. associated with “big brother”
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22
Q

The Marxist influence on development thought (power relations to cultural imperialism)

A

a

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23
Q

Advantages of market/when market fails. In particular how govts intervene with declining AC curve.

A

a

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24
Q

What we mean by state capitalism and state capitalism 2.0

A
  • (china, brazil, venezuela): large presence of state
  • many of the world’s biggest oil firms are state backed (75% of world’s reserves)
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25
Q

state capitalism: adavantages

A
  • infrastructure, mergers create big companies for emerging markets allows innocation
  • mergers incr strength and incr bargaining power vs small private LDC firms
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26
Q

state capitalism: disadvantages

A

low productivity, state owned enterprises, political corruption

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27
Q

Know all the main points of the big China article, especially those covered in class, I have also added some slides with the main points, also know the expectations model with Deng Xiaoping’s announcement.

A

a

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28
Q

surplus labor

A

3 interpretations

  1. can remove workers w/o decr output
  2. marginal productivity of labor (MPl) = 0

=> no contribution of additional worker

  1. MPl = m, subsistence wage [surplus labor]
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29
Q

dualism

A
  • wider concept of 2 contrasting sectors co-existing
  • agricultural production function
  • agr./industry
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30
Q

double dualism

A
  • formal/informal
  • > urban sector - (1) high wage govmt jobs -> formal

or (2) lower wage street vendors -> informal

-> rural sector - (1) township enterprises -> formal

or (2) small landowning farmers -> informal

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31
Q

Know the Lewis model and its policy implications (for example, China and its labor surplus policies)

A

a

32
Q

Lewis model assumptions

A
  1. urban wage, w-bar, is a fixed mark-up, rigid downwards-> urban higher cost of living
  2. both agri. and industry produce same good -> not worry about terms of trade
  3. Y = F(L) shortrun
  4. subsistence wage in rural = m < w-bar
33
Q

lewis model: movement from agriculture to industry necessary for 2 reasons

A
  1. engel’s law
  2. economies of scale
34
Q

Contrast the implications of the Lewis model and reality

part I

A

during 70s and 80s, UN conference on urbanization

=> poll: was urbanization a problem?

  1. slow urbanization
  2. reverse migrations
  3. maintain urbanization
  4. speed up migration

(lewis model goes in opposite direction (4,3,2,1)

35
Q

Contrast the implications of the Lewis model and reality

part II

A

surprising: vs. lewis & industrial bias

poverty & slums

double dualism

pop. growth: incr surplus labor

labor absorption: labor intensive industries

(rate of pop g < rate of labor absorption)

policies misguided: kenya 1964

why do people migrate?

  • > very complex decision ( not only b/c of lewis wages ideas or jobs)
  • > interactions, culture, public goods
36
Q

policy misguided: Kenya 1964

A
  • larger number of govt jobs available to decr unemployment, but actually incr unemployment
  • > more people migrated to city so unemployment incr.
37
Q

Understand the Fei-Ranis model of Lewis (Homework 2)

A

a

38
Q

Know some of the lessons from moving from agriculture to industry, Engel’s Law and sectoral shifts contribution to growth.

A

a

39
Q

Understand the meaning behind Rosenstein-Rodan’s shoe factory model (big push theory) and how it can give rise to a market failure

A

big push idea: hard for modern industry to start up in LDC bc not enough ppl w/ $ to buy products of 1 (shoe) factory

=> situation 1 - if expand, who will buy the shoes?

  • when ravelling backwards-> will not expand
  • instead, develop wide range of industries all @ same time so workers in each factory have income to buy products

=> situation 2 - shoe, food, clothing all expand @ same time

-> only way to achieve broad-based development = government plan (=> guide producers & guarantee demand)

SEE NOTES FOR THE REST

40
Q

Understand the limitations of the shoe factory model

A
  • (1) said would not expand, but could sell on a global scale
    (2) -> assumed closed economy => cant export shoes (pessimism)

how to resolve: some nontradables that cannot import/export

41
Q

Examples of backward linkages and forward linkages and leading sectors

A

backward linkage - demand reaches back to other industries

=> ex. coal, iron, steel

forward linkage - output of industry is used for other industries

=> ex. transportation

leading sector pulls/pushes rest of economy through series of linkages

=> has linkages on its own

ex. railroad: leading sector

42
Q

Difference between balanced and unbalanced growth

A

balanced growth: growth @ same time

unbalanced growth: only focus on some b/c you dont have enough funds to focus on all

43
Q

Determining which is a good sector to get into

A
  1. # of linkages
  2. strength of linkages
  3. intrinsic profitability
44
Q

Know the advantages of consumption over income in calculating distributions.

A

ppl consume income -> difficult to get actual income -> use consumption instead -> many poor LDCs

  • hard to measure income in poor countries
  • consumption may be more reliable indicator of welfare bc does not fluctuate as much
45
Q

Know the shape of frequency distribution of income and consumption

A
  • log normal (log of normal distribution
  • greater mass/”hump” focused at lower end of income (left)
  • similar for all countries not just LDCs
46
Q

Calculate Quintile Ratios

A

top 20%/bottom 20%

47
Q

Draw the Lorenz Curve and calculate the Gini Coefficient (see also homework)

A

a

48
Q

Know the limitations of the Lorenz Curve and the Gini Coefficient

A

a

49
Q

Know the stylized facts on inequality and Gini coefficients around the world

A

a

50
Q

Know the difference between inequality and poverty.

A

poverty = absolute concept

inequality = relative concept

51
Q

headcount index and why it matters which we use

A
  • % of people below poverty line
  • most direct
  • proportion of ppl that are poor
52
Q

poverty gap

A
  • measures “depth” of poverty
  • the transfer needed to bring ppl out of poverty
53
Q

squared poverty gap

A
  • looks @ severity of poverty
  • value what happens to the poor more - weighs poorest more
54
Q

Calculate headcount index and poverty gap given certain numbers (see homework 3 too)

A

a

55
Q

Know the stylized facts on Global poverty (is it falling, where is it most concentrated, etc.)

A

a

56
Q

Understand the Kuznets curve relationship, if it holds, and why the Lewis model predicts the Kuznets curve

A

a

57
Q

Know the main points of Piketty article as discussed in class

A

a

58
Q

Know the combination of history and politics and policy causes (or reduces) inequality

A

a

59
Q

Understand why inequality is possibly inevitable and what are some harmful effects of inequality

A

a

60
Q

Know if global inequality is rising or falling (depending on how we measure it)

A

a

61
Q

Article: Botswana

A

a

62
Q

Article: Country Case Study 2 – China

A

a

63
Q

Article: China After Party (I know we didn’t go over this but need to know main points)

A

a

64
Q

Article: Is China still a developing country ?

A

a

65
Q

Article: Labor Surplus in China

A

a

66
Q

Article: The Nomadic Village of Phala

A

a

67
Q

Article: Country Case Study 3: Brazil

A

a

68
Q

Article: Brazil and the World Cup

A

a

69
Q

Article: Piketty and Inequality (only what we discuss in class)

A

a

70
Q

Article: The Gold Medalist (and the discussions in class on S Korea)

A

a

71
Q

Article: What do you do when you reach the top ?

A

a

72
Q

romer model: assumptions

A
  1. y = f(k,l,ideas)
73
Q

romer model: contributions

A
  1. ideas dont hit diminishing %
  2. need education -> foster ideas
  3. define tech
74
Q

romer model: results

A
  1. IRs w/ ideas
  2. makes g & accum. possible
75
Q

romer model: limitations

A
  1. LDCs contributors to ideas? (imitators vs innovators)
  2. LDCs adapt/improve on existing ideas
76
Q
A

Econ 330 (3 decks)

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