Question

The Facts of Growth

1. What are the three main conclusions that can be drawn from an analysis of growth rates for developed countries?

2. To what extent have the three main facts of growth not held for certain countries? For which countries have they not generally held?

3. Explain why an increase in the number of workers will cause a reduction in output per worker in the long run.

4. Discuss and explain what is meant by the "state of technology."

5. Explain each of the following: (1) constant returns to scale; (2) decreasing returns to capital; and (3) decreasing returns to labor.

6. First, what are the primary determinants of output per worker? And second, to what extent can each cause a permanent change in economic growth?

7. Explain what effect a reduction in the saving rate will have on growth.

8. Explain the relationship between output per capita and happiness. Specifically, to what extent are these two variables related?

9. Briefly explain what effect an increase in the saving rate will have on growth.

10. Graphically show and explain the effects of an improvement in the state of technology.

Answer 1

Three major implications of growth analysis of developed countries is as follows -

1. The developed countries grow at a rate lesser than the developing countries. This is because they are already working at the level of full employment, and most of the productive resources that can be used are being used. In contradiction, developing economies work at levels much lower than full employment of their resources.

2. There is less dominance of agrarian economy in developed nations. Most of the growth in developed nations comes from the manufacturing and service sectors of the economy.

3. The growth rate of population is much lesser than the growth rate of the economy, which causes higher level of income per capita among the people. This induces more savings and capital formation which can then be used for useful investment in the economy. In contrast, developing nations often have a huge population growth levels which not only causes low income, but also widespread poverty and inequality, which is much less in developed economies.