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PSLecture7 - Problem Set for Lecture 7 The Decline in...

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Problem Set for Lecture 7: The Decline in Economic Growth After 1973 and The Birth of Krugman’s Age of Diminished Expectations [October 27, 2009] Note: Questions marked with a T may be discussed during tutorials and tests. Lipsey: Reading 2.5 T7A1 “Gus is very impressed with Lipsey’s presentation regarding the relative importance of economic growth over the economic importance of achieving short run economic efficiency i.e., reaching full employment and removing major economic distortions in the economy.” Explain the key thread of Lipsey’s argument to Gus. T7A2 “Garnett reviews Lipsey’s lecture and observes [from Krugman’s analysis] that increasing standards of living depend almost entirely upon technological change. Further, Garnett reads that the introduction of ‘general purpose technology’ can generate ‘deep structural adjustments’ which allow for massive improvements in standards of living. According to Lipsey, ‘general purpose technologies’ include the following innovations: steam, electricity, the internal combustion engine’. Garnett presents the suggestion that the current improvements in information and communication technologies constitute ‘general purpose technologies’ which will lead Canada, and the other industrial countries, into a new era of solid economic growth for many years to come.” Do you agree? Reference to Lewis [ The Power of Productivity] and to Van Duijn would assist in your answer. Regular Lecture 7 Questions T7.1 “Heather reads Peddling Prosperity. Krugman states that “in 1973, the magic went away” and that “we don’t know why”. Heather is puzzled. Heather wonders what is this story about magic and economics? Heather has always thought that economists were a strange breed but she did not realize that economists were into magic. Heather concludes: ‘No wonder economist’s predictions are always incorrect.’”
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