Lesson notes friday 13/3/20 Flashcards
What is Economic growth?
h is a long-term expansion of the productive potential of the economy
What are key drives of economic growth?
Anything that improves Quantity and Quality of the factors of production. Including driving innovation and enterprise.
What is Product innovation?
Developing goods, processes or services of value that have not existed previously (product innovation)
What is Process innovation?
Improving existing goods, processes or services (process innovation).
What are 4 benefits of economic growth?
Higher standards to living
Employment effects
Fiscal dividend
Accelerator effect
How is higher SOL a benefit of economic growth?
helps to lift people out of extreme poverty and improve development outcomes e,g, rising HDI.
What is an evaluation of Higher living standards?
Relatice vs absolute. It may reduce absolute poverty but not relative poverty. ( A person who comes out of absolute poverty when still be poorer then someone who is above poverty line)
What does a fiscal dividend mean?
higher economic growth will raise tax revenues and reduce government spending on unemployment & poverty related welfare benefits. Eval get more income tax and VAT etc.
What are Economic and social costs of Economic growth?
1) Increase in negative externalities such as pollution and resource depletion.
2) Risk of higher inflation (CP AND DP) and higher interest rates
3) Inequalities of income and Wealth.
What is economic development?
Economic Development is the process focusing on both qualitative and quantitative growth of the economy. It measures all the aspects which include people in a country become wealthier, healthier, better educated, and have greater access to good quality housing ( poor country becoming wealthier)
How can economic growth spur development ( 3 ways)?
Increased per capita GDP/GNI gives households and businesses greater finanical resources to save. ( Harrod domar growth model)
2) Higher incomes reduces income and wealth inequality.
3) Economic growth can generate higher tax revenues for the government - providing more funds to finance public and merit goods and welfare spending.
What is the Harrod domar growth model?
The Harrod Domar Model suggests that the rate of economic growth depends on two things:
Level of Savings (higher savings enable higher investment)
Capital-Output Ratio. A lower capital-output ratio means investment is more efficient and the growth rate will be higher.
What is capital output ratio?
1/marginal product of capital.
The capital-output ratio is s the amount of capital needed to produce one unit of output.
What are the factors that the Harrod growth model depends for increase in economic growth?
Levels of saving( Higher savings enable greater investment in capital stock)
The marginal efficiency of capital. This refers to the productivity of investment, e.g. if machines costing £30 million increase output by £10 million. The capital-output ratio is 3
Depreciation – old capital wearing out
So what is the basic formula of the Harrod growth model?
Basic Harrod-Domar model says:
Rate of growth of GDP = Savings ratio / capital output ratio
What are common characterstics of Developing nations
Relatively low income per capita and low level of absolute savings.
2) High dependency on export incomes from commodites ( Raw materials) ( as price takers, if demand falls, TR will fall) EVal = AD valorem
3) Weakenesses in infrastrcuture such as telecoms, transport, ports etc ( business dont want to go there)
4) A large informal sector.
What does an Imformal sector mean?
is the part of an economy that is neither taxed, nor monitored by any form of government.
