ECON 2010-Exam 2

ECON 2010-Exam 2 - Chapter 10 Economic Growth in US What...

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10-7-09 Chapter 10 Economic Growth in US - What caused productivity slowdown of ‘73-‘94? o 3 possible explanations Measurement problems: shift from goods to services created chages not captured by GDP measurements High oil prices: nation experience extreme supply shocks to oil Decline in labor quality: some believe education system in US - Developing Nations o Economic growth models suggest that intro of capital will offer most pronounce effect in nations with less capital. This is consistent with diminishing returns and marginal product of capital o Going further, models suggest high growth rates for poor countries and slow rates for wealthy countries; this would ultimately lead to convergence o World isn’t neutral environ., however, where all things hold equal - Why isn’t the Whole World Rich? o ** fig. 22-7** o Catch-up: prediction that level of GDP per capita (or income per capita) in poor countries will grow faster than in rich countries o **fig. 22-8** o **fig. 22-9** o World Economic Growth Theory doesn’t take into acct the varied differences across nations; some countries represent fertile ground for economic development, while others don’t Dichomy isn’t random; enough factors of success must be sufficiently present Not all successful countries are alike, but they do share some min. threshold of positive factors o Economic Parity…why it doesn’t occur Failure to Enfore the Rule of Law Property rights— rights individuals or firms have to exclusive use of their property, including right to buy or sell it
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o Step further: faith that gov’t won’t expropriate property or change rules to suit whims of political leaders Rule of law —ability of gov’t to enforce laws of country, particularly with respect to protecting private property and enforcing contracts o Outside investors and companies must have confidence a nation will provide foreigners with safe environ. For their capital; they will not invest if their risk of loss is too great **fig. 22-10** Why Don’t More Low-Income Countries experience Rapid Growth? o Warfare destroys existing capital stock, and deters any new investment; those nations where coups, revolutions, or wars with neighboring countries occur frequently or are feared to happen soon will experience decline in investment o Poor Public Education and Health Many low income countries have weak public school systems; illiterate unskilled labor is
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ECON 2010-Exam 2 - Chapter 10 Economic Growth in US What...

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