22_WhyAreSomeCountriesRichOthersPoor

22_WhyAreSomeCountriesRichOthersPoor - Why Are Some...

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Why Are Some Countries Rich Why Are Some Countries Rich and Others Poor? and Others Poor? Reading: Zagorsky Chapter “Productivity and Growth”
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First Question Why Are Some Countries Rich and Others Poor? A country’s standard of living depends on its ability to produce goods and services Rich countries are able to produce Poor countries are not able to produce
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Which Country Is Richest? Look at Statistical Abstract. In 2009 edition the table is 1305. GNI (Gross National Income) same as GDP but derived by alternative method. GDP per capita. In dollars divided by mid-year population Atlas Method – “Synthetic” exchange rate over 3 years and adjusted for G5 inflation Purchasing Power Parity Method – official current exchange rate.
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Rankings: Top of the list.
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Rankings: Bottom of the list. Scale comparison: Microsoft’s sales in 2008 were $60.4 billion. If made a country would rank #58 in world.
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Second Question Currently, U.S. federal government spends more money than it takes in. Possible choices to fix this are: Reduce spending Increase taxes Borrow and shift problem to younger generations. Can we create another choice?
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These Questions These questions have been around since the very first economists. One the earliest economists, Jean Baptiste Say, believed that what a country produced was based on: the amount of land it had, the number of people ( labor ), its’ factories ( capital ) plus the number and quality of risk-taking entrepreneurs.
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Jean-Baptiste Say 1767-1832 Born in Lyons to a Huguenot family of textile merchants. Was an ardent Republican. His most famous work, “Treatise on Political Economy” (1803). Treatise articulated the economic idea of laissez-faire . Laissez-faire means that the government should not interfere with the economy. By leaving the economy alone, the economic pie naturally ends up as large as possible.
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Cross National Growth Rates
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What Does Table Say? Some countries have HIGH GROWTH. Japan (1890 to 2000) Real GDP increased from $1,256 to $26,460 or 2.81% per year Some countries have MEDIUM GROWTH. USA (1870 to 2000) Real GDP increased from $3,347 to $34,260 or 1.81% per year. Some countries have LITTLE OR NO GROWTH. Pakistan (1900 to 2000) Real GDP changed from $616 to $1,960 or 1.16% Bangladesh (1900 to 2000) Real GDP changed from $520 to $1,650 or 1.16%
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Why Do We Care? Why are the growth rates in the table’s last column important? Growth rates help determine a country’s economic path or trajectory. Countries with high growth rates become rich Countries with low growth rates end up poor no matter where they start!
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Rule of 70 or 72 If a variable grows at a rate of X percent per year, and is compounded annually (once each year) the variable will double in size in approximately 72 / X = years If a variable grows at a rate of X percent per year, and is compounded continuously (every moment) the variable will double in size in approximately 70 / X = years
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22_WhyAreSomeCountriesRichOthersPoor - Why Are Some...

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