Principles of Macroeconomics – Growth Theories (Lecture 5.2)

Principles of Macroeconomics – Growth Theories (Lecture 5.2)

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Principles of Macroeconomics – Growth Theories (Lecture 5.1) Achieving Faster Growth Growth accounting tells us that to achieve faster economic growth; we must either increase the growth rate of capital per hour of labour or increase the pace of technological change. The main suggestions for a.chieving these objectives are: o Stimulate Savings Saving finances investment. So higher saving rates might increase physical capital growth. Tax incentives might be provided to boost savings. Key to growth is technology:
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Policies for Growth – To encourage economic growth Stimulate research and development o Increase in investment, which involves more savings for the longer term investment. This increases capital and research and development to increase technology with education, increasing the quality of labour. o Because the fruits of basic research and development efforts can be used by everyone, not all the benefit of a discovery falls to the initial discoverer. o So the market might allocate too few resources to research and development. o Government subsidies and direct funding might stimulate basic research and development. Encourage international trade o Free international trade stimulates growth by extracting all the available gains from specialization and trade. o The fastest growing nations are the ones with the fastest growing exports and imports. Growth Theories Classical growth theory o The view that real GDP growth is temporary and that when real GDP per person rises above the subsistence level, a population explosion brings real GDP per person back to the subsistence level.
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o There is a subsistence real wage rate, which is the minimum real wage rate needed to maintain life.
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This note was uploaded on 09/27/2011 for the course FINANCE 1001 taught by Professor Profassorted during the Three '11 term at University of Adelaide.

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Principles of Macroeconomics – Growth Theories (Lecture 5.2)

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