lesson 16: economic growth and development Flashcards
what is economic growth? what is it measured in?
increase in real output in the economy over time measured by the percentage change in real GDP
what are the three components we have to consider to truly understand economic welfare?
the economic welfare derived from the goods and services purchased
the economic welfare derived from the publics goods and merit goods provided by the state
the economic welfare derived from the quality of life factors
how do we calculate HDI?
cube root of (life expectancy x education x income)
what does the harrod-domer model show?
investment, saving and technological change are the key variables in determining economic growth
there is no savings in the bank so there is no money for banks to lend so investment falls leading to a fall in AD
what is the link between savings and investment (in terms of the harrod-domer model)
there is no savings in the bank so there is no money for banks to lend so investment falls leading to a fall in AD
what are policies to promote growth and development?
free market strategies - trade liberalisation, FDI, removal of subsidies, freely floating exchange rates, privatisation
interventionist strategies - education, trade protection, managed exchange rates, infrastructure development, buffer stock schemes
other - development of tourism, development of primary industries, fair trade schemes, aid, debt relief
what did ha-joon chang argue?
as soon as competition emerges the rich countries pull up their draw bridge and argue that protectionism is needed to protect themselves from unfair foreign competition
theyll trade as long as it benefits them
what is the strategic trade theory argued by paul krugman?
strategically protect industries to protect developing countries
why do free trade supporters disagree with the strategic trade theory?
they say this argument is flawed and state that trade allows developing economies to build up their own industries and encourages investment in activities that promote development
what do freely floating exchange rates mean?
governments dont need to intervene to protect the value of their currency
however volatility may see import and export prices vary widely with the resulting impacts upon macroeconomic objectives
what type of exchange rate system do interventionists argue for?
managed exchange rate because it offers stability and enables export prices to be more competitive
manged = keep it weak = weaker exports = competitive
what are many developing countries reliant on in terms of exports and this leaves them what?
commodity exports
leaves them vulnerable to volatile prices
what does a buffer stock do?
it will buy after a bumper harvest to reduce the excess supply to keep prices above their natural equilibrium
if there is a poor harvest stocks are released into the market to prevent excess demand and keep prices down
what is a bumper harvest?
a good harvest
what do buffer stock schemes create?
stability
what is the lewis model?
the move from primary to secondary industry because its more productive and boosts growth
industrialisation is needed for growth
what is the issue associated with aid?
corruption, may not be spent on where needed
development aid is whats needed to help a country stand on its own two feet
what is the prebisch singer hypothesis?
primary commodities decline relative to the prices of manufactured goods over the long run, leading to a deterioration in the terms of trade for primary-product-based economies
