Traditional Economy

Question 1

In the year 1000 which countries are richest?

Answer 1

China and India are richer than USA and WE

Question 2

In 1820 which countries are richest?

Answer 2

By 1820 WE and USA are twice as rich as China

Question 3

In 2000 which countries are richest?

Answer 3

In 2000 USA is 8x richer than China and WE is 6x richer than China

Question 4

Bubonic plague

Answer 4

A plague 1350-1650 which took the population in England from 4.8m to 1.9m and actually increased GDP per capita

Question 5

Great divergence

Answer 5

From 1820 to 1900, the USA triple their wealth and the UK more than double theirs whilst many countries barely grow. This is mainly due to the industrial revolution

Question 6

What happens in terms of relative changes in wealth in the period 1900-2000

Answer 6

Sustained economic growth continues in USA and WE as well as the start of sustainable growth in other countries. Still absolute divergence but not comparatively in terms of percentages.

Question 7

What happened in relative changes of wealth in the period 1990-2008?

Answer 7

China has been growing quicker than USA and WE, china is only 5x and 3x poorer than USA and WE in 2008

Question 8

Summarise the pre 18th century model of growth

Answer 8

Labour force, land and technology are combined to give GDP. Increasing labour force may have negative effects on GDP per capita though. Land is fixed so technology is the only option for growth

Question 9

Summarise post 18th century model of growth

Answer 9

Labour force, human capital, physical capital and technology are combined to give GDP. Technology is still the only one that can grow exponentially

Question 10

Fundamental causes of growth

Answer 10

Luck
Geography
Culture
Institutions

Question 11

Describe the convergence of UK and poor countries from 1950 to 2008

Answer 11

• some Asian countries converged with UK
• there is no convergence of South American countries and UK
• africa and UK has actually diverged

Question 12

Club convergence

Answer 12

A theory that suggests economies that are similar structurally will converged in the long run

Question 13

Unconditional convergence

Answer 13

Simply suggests poor countries should grow quicker than rich ones so they converge

Question 14

Economic structure

Answer 14

The share of the economy made up of agriculture, industry and services

Question 15

The era of stagnation

Answer 15

130,000BC -18th century AD when there was no sustained economic growth and no increase in real wages

Question 16

What does a basic traditional model tell us about GDP per capita

Answer 16

That each additional contribution of labour is lower the more labour there is and so adding an extra worker decreases GDP per capita

Question 17

Exogenous variable

Answer 17

A constant we fee into the model

Question 18

Endogenous variable

Answer 18

A variable that dormers on other variables in the model

Question 19

What is the fundamental equation of growth for a traditional economy

Answer 19

g= g^A - Bn(y)

g=growth rate
g^A= rate of technological progress
B= parameter
n(y)= population growth as a function of GDP per capita

Question 20

Predictions of Malthusian era

Answer 20

1. Countries that have experienced g^A>0 for longer shouldn’t be richer
2. Countries that have higher n(y) should be relatively poorer
3. A sudden fall in L will increase y which in turn will cause L to increase again until y=y*

Question 21

Why are there no diminishing returns to labour in the modern sector?

Answer 21

Because more capital can be made so labour doesn’t overcrowd it.

Question 22

How is growth different in a modern sector?

Answer 22

In a modern economy growth is equal to the rate of technological growth