pes16pset7sol - Principles of Economics W1105.002 Spring...

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Principles of Economics W1105.002 Spring 2016 Prof. Musatti Student Name: _______________________ UNI __________________________ Section Number_____________________ Problem Set 7 -Solutions 1 . Discuss the following statement by economist Enrique Martinez-Garcia: “Technological progress is the key to a country’s long- term increase in its material well-being”. Do you agree with the statement? According to the (Solow) growth model you have studied in class, can there be long-term economic growth without technological progress? Why is it so? Yes. While capital deepening and higher labor quality also contribute to increases in material well-being, without technological progress these are not able to fuel long-term growth. According to the growth model, countries suffer from diminishing marginal returns to investment in capital goods (physical capital) and in labor skills and quality (human capital). Unless technological progress makes the economy more and more efficient and productive, the increases in output from bare investment tend to thin out over time as more and more of gross investment is spent to replace and maintain equipment and to replace retiring skilled workers. 2. Read the article “Has the Ideas Machine Broken Down?” published on the January 12, 2013 issue of “The Economist”. A copy of the article is posted on Courseworks under Files and Resources.
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