Long run economic growth

Question 1

In Pakistan, 85% of people live on:

Answer 1

Less than $2 a day

Question 2

The underlying view is that long run economic growth:

Answer 2

Will lift countries out of mass poverty

Question 3

Why does growth matter?

Answer 3

• Anything that affects LR growth has a huge effect on LR living standards
• Small growth rate over time leads to compounding = high total growth rate

Question 4

How does the IMF or world Bank distribute votes?

Answer 4

By economic size

Question 5

Political influence is related to:

Answer 5

Economic power

Question 6

The Solow model looks at:

Answer 6

Determinents of economic growth and the standard of living in the long run

Question 7

How is the Solow model different?

Answer 7

• K no longer fixed
• L no longer fixed
• Consumption function is simpler
• No G or T

Question 8

Revise production function on LREG lecture slide 13

Answer 8

x

Question 9

Under the Solow model, anything that isn’t consumed is:

Answer 9

Invested via the savings mechanism

Question 10

Under Solow, is s an exogenous or endogenous parameter?

Answer 10

Exogenous

Question 11

Investment replaces:

Answer 11

Capital

Question 12

Investment makes the capital stock:

Answer 12

Bigger

Question 13

Depreciation makes the capital stock:

Answer 13

Smaller

Question 14

Change in capital stock =

Answer 14

Investment (I) - Depreciation (δk)

Question 15

What is δ?

Answer 15

“Delta” - rate of depreciation

Question 16

If investment is just enough to cover depreciation, then:

Answer 16

Capital per worker will remain constant

Question 17

High investment is associated with:

Answer 17

High income per person

Question 18

What is the law of motion?

Answer 18

change in k = sf(k)-δk

Question 19

What is the golden rule level of capital?

Answer 19

The steady state value of k that maximises consumption

Question 20

What is the steady state?

Answer 20

Capital per worker remains constant

Question 21

Under the steady state, investment is just enough to:

Answer 21

Cover consumption

Question 22

k* is called the:

Answer 22

Steady state capital stock

Question 23

The constant level of capital under the steady state is denoted by:

Answer 23

k*

Question 24

Achieving the golden rule requires that policymakers adjust:

Answer 24

s

Question 25

What is break-even investment?

Answer 25

The amount of investment necessary to keep k constant

Question 26

What is the formula for break even investment?

Answer 26

(δ+n) k

n = interest rate

Question 27

Malthusian model predicts that earth’s population will:

Answer 27

Outstrip the Earth’s ability to produce food

Question 28

The Kremerian model says that population growth contributes to:

Answer 28

Economic growth

Question 29

The Kremerian model says more people =

Answer 29

More geniuses, scientists & engineers, so faster technological progress