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Study Guide 1

Study Guide 1 - Econ114,Summer2010 I...

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Study Guide for Midterm 1 Econ 114, Summer 2010 I. Chapter 1 & 2: Introduction a. Measures of Development i. GDP per capita 1. Comparing across countries – PPP 2. Criticisms ii. GDP growth rates 1. Calculations iii. Human Development Index (HDI) 1. Measure of quality of life (education, health, life expectancy & GDP per capita) iv. Income Inequity b. Interpreting Data i. Correlation vs. Causation II. Chapter 3: Physical Capital a. History of Development Theories i. Early Models: Structural Change and Stages of Growth 1. Criticisms ii. International Dependence 1. Criticisms iii. Neo‐Classical Growth Models 1. Difference from previous models 2. Criticisms b. Solow Growth Model i. Factors of Production ii. Assumption of Diminishing Marginal Product iii. Cobb‐Douglas Production Function 1. Y = A*K α L 1‐α 2. y = A*k α 3. Capital Share of Income: α iv. Capital Accumulation 1. k t + 1 = (1 δ ) k t + γ y ( k t ) v. Steady State 1. ) ( 0 ss ss k y k k = = Δ vi. Predictions 1. An increase in depreciation => a decrease in steady state output per person 2. An increase in the rate of investment => an increase in steady state output per person
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3. As a country approaches steady state, the growth rate will decrease c. Applications of Capital Accumulation i. Soviet 5yr. plans 1. Heavily focused on rapid accumulation of capital 2. Resulted in high growth rates at first, but absence of other factors eventually led to stagnation.
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Study Guide 1 - Econ114,Summer2010 I...

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