L6 pGDP

Question 1

Classical

Growth theory

Answer 1

1. Temporary rGDPpp growth as growth cause popn explosion thus rGDPpp to ori
2. Doomsday scenario Malthus - popn expon ^ that ppl can no longer produce, Popn growth unlimited, phy res limited

BUT

• historical evidence: Popn^ not tightly linked to GDPpp & SOL
• assumes productivity static but in practice it is ^ x dwindling pp

Question 2

Neoclassical Grow

Answer 2

rGDPpp grows bcs tech prog leads ro savings & investments (phy cap^)
Hence tech prog important, or else diminishing returns x growth

Permanent rGDPpp ^ x depend on popn

BUT
doesn’t explain how tech prog
Why countries poor vs rich when tech adv diffuse across borders

Question 3

New

Growth

Answer 3

rGDPpp ^ indefinitely
Rate of grow ~ new tech search intensity/scale driven by incentives

Increase Productivity=
Incentives:
Market economy - profit discovery fund r&d
Property rights
Capital

Argues:

1. Discoveries public good - cannot exclude others from using too
2. knowledge x dim ret - discoveries built on current knowledge

Question 4

Perpetual motions machine

Answer 4

Innovation- better technique & prods
Productivity^ wage^ consumption^ leisure^
Consumption^ demand^ further innovations

Question 5

Policies based on empirical evidence

Answer 5

1. Less tax savings -invest
2. Public funding & tax incentives-R&D
3. Hardship loans & invest schools -edu access & quality
4. lower trade barriers(tariffs) -encourage intl trade

Question 6

Growth theories

Answer 6

Classical
Neo classical
New