Lecture 3 - The era of stagnation

Question 1

How do we compute growth models of certain variables?

Answer 1

• In growth models we are naturally interested in allowing variables to change with time (t)
• So we should really write all variables as functions of time but for simplicity we continue to call them Y, A, X and L but they are all functions of time

Question 2

When calculating the growth of a variable, what do we do?

Answer 2

When working with growth we are interested in taking the first derivative of the variable with respect to time

Question 3

What does the derivative dA/dt tell us?

Answer 3

dA/dt tells us how the variable A changes as time increases by one unit, in this case by one year

Question 4

How else can we display dA/dt for more simplicity?

Answer 4

A˙ ≡ dA/dt

Question 5

State the mathematical expression which shows the growth of GDP per capita

Answer 5

dy/dt/y or y˙/y

Question 6

Use differentiation to derive the function representing the growth in GDP per capita

Answer 6

See slides 6 to 10 of lecture 3

Question 7

What is the function representing the growth in GDP per capita of a traditional economy?

Answer 7

g = g^A - βn
- g represents y˙/y
- g^a represents A˙/A
- n represents L˙/L

Question 8

What does the symbol g represent?

Answer 8

g represents y˙/y which is the growth of GDP per capita

Question 9

What does the symbol g^A represent?

Answer 9

g^A represents A˙/A

Question 10

What does the symbol n represent?

Answer 10

n represents L˙/L

Question 11

What does the growth of GDP per capita model g=g^a-βn tell us about increases in GDP per capita?

Answer 11

The growth in GDP per capita is higher when:
1- The higher the growth in the efficiency with which land and labour are combined (g^A)
2- The lower the population growth (n)

Question 12

What do economists call A and g^A?

Answer 12

• Economists call A technology
• Economists call g^A technological progress

Question 13

What does the model g = g^A - βn tell us about a traditional economy?

Answer 13

• Technological progress is the only engine of growth in a traditional economy
• Population growth is the only brake on growth in a traditional economy

Question 14

What is a limitation of the model g = g^A - βn for a traditional economy?

Answer 14

• n is treated as exogenous, it is just a number that we feed into the model
• We are not considering that it could depend on other variables in the model

Question 15

What are the determinants of population growth?

Answer 15

• The fertility rate
• The mortality rate