Foundations of Economic Growth
This is defined as the tendency of real GDP to grow at full employment over a long period of time.
What is Economic Growth?
In Neo-Keynesian models, economic growth is considered a "one-factor" model because it depends primarily on this.
What are Investments?
Robert Solow won the Nobel Prize for his model which introduced this concept to resolve the instability of previous models.
What is Factor Substitutability?
This economist developed a dual-sector model focusing on redistributing surplus labor from the agricultural sector to industry.
Who is Arthur Lewis?
In the Harrod-Domar model, if the savings rate (s) is 20\% (0.2) and the capital-output ratio (v) is 4, what is the economy's growth rate?
What is 5\%? (g = s/v = 0.2 / 4).
This type of growth occurs due to a quantitative increase in resources, such as building new enterprises or attracting additional land.
What is Extensive Growth?
According to the Domar model, the equilibrium growth rate is determined by the ratio of the saving rate (s) to this ratio (v or \sigma).
What is the Capital-Output ratio?
In the Solow model, this is the condition where capital per worker and output per worker remain constant over time.
What is the Steady State?
Neoclassical models differ from Neo-Keynesian models by assuming that factors of production are this.
What are Substitutes?
This specific type of growth, often associated with the Solow model, occurs when a country with a lower initial capital per worker grows faster than a wealthy country to reach a similar steady state.
What is Conditional Convergence?
This growth type is associated with improving the quality of resources and using the latest scientific and technical advancements.
What is Intensive Growth?
In the Harrod model, this is the rate of growth that satisfies entrepreneurs and ensures full-capacity utilization.
What is the Warranted Growth Rate (Gw)?
According to Solow, this is the only factor that ensures the continuous growth of the standard of living in the long run.
What is Technological Progress?
In the Solow model, a high rate of this specific factor reduces the standard of living and capital supply per person.
What is Population Growth?
In the steady state of the Solow model, this is what happens to the growth rate of total output (Y) if the population growth rate (n) increases.
What is it increases? (Total output grows at n + g).
Unlike nominal GDP, this measurement is inflation-adjusted and reflects the true expansion of an economy's output.
What is Real GDP?
Harrod-Domar models assume that production factors cannot replace each other, a concept known as this.
What are Non-substitutable factors? (or Leontief production function).
This "Rule" identifies the savings rate that maximizes the level of consumption in the steady state.
What is the Golden Rule?
According to Edmund Phelps, at the Golden Rule level, the marginal product of capital (MPK) must equal this.
What is the Depreciation rate plus population/technology growth? (n + g + \delta).
This model, mentioned as an advancement beyond Solow, suggests that growth is "endogenous" and driven by human capital and R&D rather than just exogenous technology.
What is the Romer-Lucas (Endogenous) Model?
This specific metric is used as a proxy for average living standards by dividing real GDP by the population.
What is Real GDP per capita?
This term describes the inherent instability in the Harrod-Domar framework, where any deviation from the equilibrium leads to a cumulative boom or bust.
What is the Knife-Edge problem?
This is the mathematical function often used in Neoclassical models where output depends on technology, capital, and labor with constant returns to scale.
What is the Cobb-Douglas Production Function?
This classic economist emphasized the "Stationary State," which emerges when profits fall to a minimum and net investment becomes zero.
Who is John Stuart Mill?
Calculate the change in capital per worker (\dot{k}) if the savings rate is 0.4, f(k) = k^{0.5}, current k = 16, and the break-even investment rate (d+n+g) is 0.1.
What is 0? (\dot{k} = 0.4(16^{0.5}) - 0.1(16) = 1.6 - 1.6 = 0; the economy is in a steady state).