Growth and Stagnation

Question 1

Harrod-Domar model

Answer 1

The rate of economic growth depends on two key factors: the amount of capital investment in the economy and the level of productivity of that capital.

Poor countries see a financing gap between investment and actual savings - so a development solution is to fill that gap with foreign aid

Question 2

Lewis Dual Sector Model

Answer 2

Developing world is labour abundant, structural change is when surplus labour shifts from agriculture to industry, with industrial output reinvested in capital

Question 3

Conditional convergence

Answer 3

See convergence in growth between countries with similar institutions, geography, etc.

Question 4

Lucas paradox

Answer 4

We expect money to flow from rich to poor - where marginal product of capital is higher, but that does not happen in reality

Question 5

Two types of growth?

Answer 5

Catch up = capital accumulation
Cutting edge = productivity improvements