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notes 4 - EC202 Fall 09 Lecture Notes 4 Economic Growth...

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Lecture Notes 4 Economic Growth Gabriele Gratton September 16, 2009 1 Readings Mankiw, Ch. 7 and 8 2 Introduction Today we start one of the two big topics in macoeconomics Economic Growth: what determines the income of the population of a country? why some countries are poor and other rich? what can the government of a poor country do to become rich? These questions are clearly at the center of economic theory and debate and some might even say that this is all economics is about, or at masterpiece, indeed, was titled An Inquiry into the Nature and Causes of the Wealth of Nations . During these two lectures we are going to give some answer to these fundamental questions of economics. At ±rst we are going to have a look at what we consider being the facts. Then we will build a model, the Solow model, to try to identify the determinants of economic growth and income levels of an ideal economy. Unfortunately the Solow model will only partially answer the questions and we will have to enrich it quite a bit before considering it satisfactory. Furthermore we will test some implication of the model and we will see that it fails to predict entirely how the world is. Further studies are still needed and nobody has an unambiguous and unique answer to all the questions about economic growth. In any case, the model we are going to study ² though limited ² allows us to understand some of the key determinant of economic growth and still remains the workhorse of growth theory today. The next four sections constitute the beginning of our analysis. I am going
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This note was uploaded on 01/28/2010 for the course EC CASEC202 taught by Professor Graton during the Spring '10 term at BU.

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notes 4 - EC202 Fall 09 Lecture Notes 4 Economic Growth...

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