Summary: Economic Growth

Read the summary and the most important questions on Economic Growth

• 1 Economic Growth upto the 21th Century

• Name the most commonly indicator of the degree of a country's development

  Gross Domestic Product (GDP). Can be calculated as either the total income earned in a country or the value of the output produced in a country.
  
  - Also includes foreign investment
  - Use per Capita when measuring different population sizes
  - Exchange rates may give a distorted view

• Name the solution to the problem with exchange rates when measuring GDP per capita

  Purchasing Power Parity
  A measurement of national income based on the relative purchasing power of a currency, measured by the price of a standardized basket, which contains a set of traded and non-traded goods and services

• What are the two graph scales used when displaying growth rates and what are their proporties?

  Ratio Scale: Logarithmic. Proportional change
  
  Linear Scale: Equal spaces for equal differences

• Name the rule used to analyze when a country's growth rate doubles

  Rule of 72
  
  72/g

• Describe world inequality in history

  Between country vs in-country
  1820 80% in-country
  
  2015 67% between-country

• Analyse growth in history

  Growth before 1820 nearly stagnant 0.7%
  Growth after 1820 until the last 35 years. Inequality between countries from 3:1 to 19:1
  Growth in the last 35 years. Growth miracles: China 8%
  Disasters: Zimbabwe -4.5%

• 2 A framework for analysis

• Formulate the Production Function

  F A(K,L)
  K = Capital = Refers to physical stock like machines, vehicles and other pieces of equipment used during the process of production as well as financial capital, like securities. Difference in capital means difference in investment rates
  L = Labour
  A = Productivity = The effectiveness with which output is produced
  Technology = Defined by the state of available knowledge about how to do (produce) things.
  Efficiency = The way technology is used
  Efficiency x Technology = Productivity

• Name two different types of factors that influence economic growth

  Proximate Cause: Direct cause
  Ultimate Cause: Indirect Influence
  Fundamentals: The underlying factors that influence growth

• Explain the analysis of economic models

  Scatter Plot: Relationship between two variables (X and Y axis). Each observation is represented by a single dot
  
  Outliers: Observations which show a clear deviation from the normal pattern
  
  Correlation : -1 , 1 
  X causes Y
  Y causes X
  No relationship but a third omitted variable changes both X and Y
  
  Reverse Causation
  
  Cross-Sectional Data: Observations of different units at a single point in time

• 3 Physical Capital

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• Name the two different returns on capital and labour

  Constant returns to scale. If we multiply both L and K with x. The output is multiplied with x
  
  Diminishing marginal product. Described by the Cobb-Douglas Function
  Y = AK(^@)L^1-@
  
  In competitive markets MPL = Wages and MPK = Rent
  
  Capital's Share of Income = (MPK * K)/Y