Lecture 6-1 - Economics 102 Lecture 6: Growth and Policy...

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1 Economics 102 Lecture 6 : Growth and Policy LECTURE 6 GROWTH AND POLICY 1 Growth and Policy § Why do some countries grow so much faster than others? § Despite many billions of dollars of foreign aid, several African countries have experienced zero and even negative economic growth. Why? § Is there something poor countries could do to become rich? LECTURE 6 GROWTH AND POLICY 2 In this lecture, look for answers to these questions: § How much difference would a small increase in the growth rate make? § What determines the growth rate of productivity? § How can public policy affect economic growth and living standards?
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2 LECTURE 6 GROWTH AND POLICY –1.3% 1,685 Haiti 0.2% 1,326 Rwanda 0.8% 14,022 Saudi Arabia 0.8% 12,723 Argentina 1.3% 4,558 Philippines 1.4% 22,912 New Zealand 1.8% 7,121 Colombia 2.1% 31,129 Canada 2.2% 39,618 United States 2.5% 3,115 India 2.6% 24,082 Israel 3.2% 25,341 Spain 3.9% 29,539 Japan 5.4% 27,273 Singapore 5.6% $5,495 China Growth rate, 1960-2004 GDP per capita, 2004 Incomes and Growth Around the World FACT 2: There is great variation in growth rates across countries. LECTURE 6 GROWTH AND POLICY 4 E X E R C I S E E X E R C I S E 1: : Discussion question Discussion question Which of the following policies do you think would be most effective at boosting growth and living standards in a poor country over the long run? a. offer tax incentives for investment by local firms b. …by foreign firms c. give cash payments for good school attendance d. crack down on government corruption e. restrict imports to protect domestic industries f. allow free trade LECTURE 6 GROWTH AND POLICY 5 Differences in Growth Rates Matter § Output per capita has been growing at a rate of about 2% in the U.S. At this rate, the U.S. standard of living will double about every 35 years. § In China, output per capita has recently been growing at a rate of about 9%. At this rate, the Chinese standard of living will double about every 8 years.
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3 LECTURE 6 GROWTH AND POLICY 6 Economic Growth Trends § As we noted in Lecture 5 Several Asian countries, including China, have grown vary rapidly. Catching up with the standard of living in the United States. LECTURE 6 GROWTH AND POLICY 7 LECTURE 6 GROWTH AND POLICY 8 ECONOMIC GROWTH AND PUBLIC POLICY Next, we look at the ways public policy can affect public policy can affect long -run growth in productivity run growth in productivity and living standards. and living standards.
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4 LECTURE 6 GROWTH AND POLICY 9 What Explains Different Growth Rates? § Recall the per worker production function: Y / L = A F ( K / L , H / L , N / L ) § This per worker production function shows that productivity (output per worker) depends on: the level of technology ( A ) physical capital per worker ( K / L ) human capital per worker ( H / L ) natural resources per worker ( N / L ) LECTURE 6 GROWTH AND POLICY 10 What Explains Different Growth Rates?
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Lecture 6-1 - Economics 102 Lecture 6: Growth and Policy...

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