Econ 252: Chapter 7 and 8 Notes
Econ 252: Chapter 7 and 8 Notes ECON 252
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This 2 page Class Notes was uploaded by Zach Weinkauf on Wednesday February 24, 2016. The Class Notes belongs to ECON 252 at Purdue University taught by Andres Vargas in Fall 2016. Since its upload, it has received 22 views. For similar materials see Macroeconomics in Economcs at Purdue University.
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Date Created: 02/24/16
Chapter 7: Economic Growth 7.1 – The Power of Economic Growth Economic Growth – the increase in GDP per capita of an economy Growth Rate – change in a quantity between two dates, relative to the baseline Exponential Growth – situation in which the growth process can be described by an approximately constant growth rate of a variable Catch Up Growth – growth process whereby relatively poorer nations increase their incomes by taking advantage of knowledge and technologies already invented in another Sustained Growth – growth process where GDP per capita grows at a positive and relatively steady rate for long periods of time 7.2 – How does a Nation’s Economy Grow? Saving Rate – designates the fraction of income that is saved Technology change – process of new technologies and new goods and services being invented, introduced, and used in the economy, enabling the economy to achieve a higher level of GDP for given levels of physical capital stock and total efficiency units of labor 7.3 – The History of Growth and Technology Subsistence Level – minimum level of income per person that is generally necessary for the individual to obtain enough calories, shelter and clothing to survive Fertility – number of children per adult or per woman of childbearing age Malthusian Cycle – preindustrial pattern in which increase in aggregate income lead to an expanding population, which in turn reduces income per capita and puts downward pressure on population Demographic Transition – decline in fertility and number of children per family that many societies undergo as they transition from agriculture to industry Industrial Revolution – term used for describing the series of innovations and their implementation in the production process that started to take place at the end of the eighteenth century in Britain 7.4 – Growth, Inequality, and Poverty Appendix: The Solow Growth Model Steady-state Equilibrium – economic equilibrium in which the physical capital stock remains constant over time Dynamic Equilibrium – traces out the behavior of the economy over time Chapter 8: Why isn’t the Whole World Developed? 8.1 – Proximate versus Fundamental Causes of Prosperity Proximate causes of Prosperity – high levels of factors such as human capital, physical capital and technology that result in a high level of GDP per capita Fundamental Causes of Prosperity – factors that are at the root of the differences in the proximate causes of prosperity Geography Hypothesis – claims that the difference in geography; climate and ecology are ultimately responsible for the major differences in prosperity observed across the world Culture Hypothesis – claims that the different values and cultural beliefs fundamentally cause the differences in prosperity around the world Institutions – formal and informal rules governing the organization of a society including its laws and regulations Institution Hypothesis – claims that the differences in institutions – that is, in the way societies have organize themselves and shaped the incentives of individuals and businesses – are at the root of the differences in prosperity across the world 8.2 – Institutions and Economic Development Private property rights – individuals can own businesses and assets and their ownership is secure Economic Institutions – aspects of the society’s rules that concern economic transactions Inclusive Economic Institutions – protect private property, uphold law and order, allow and enforce private contracts, and allow free entry into new lines of business and occupations Extractive Economic Institutions – do not protect private property rights, do not uphold contracts, and interfere with the workings of markets. Political Institutions – aspects of the society’s rules that concern the allocation of political power and the constraints on the exercise of political power Creative Destruction – process in which new technologies replace old ones, new businesses replace existing businesses, and new skills make old ones redundant Political Creative Destruction – process in which economic growth destabilizes existing regimes and reduces the political power of rulers 8.3 – Is foreign Aid the Solution to Poverty?
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