Economic Development: Growth Theories
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Questions and Answers

Which key factor does the Keynesian model emphasize for economic growth?

  • Government spending
  • Accumulation of human capital
  • Technological innovation
  • Accumulation of capital (correct)
  • What does the Harrod-Domar model primarily focus on in relation to economic growth?

  • Relationship between inflation and employment
  • Government policies on taxation
  • Savings as a constant proportion of income (correct)
  • Impact of foreign investment
  • Which of the following aspects is NOT considered explicitly by the Keynesian Growth Theory?

  • Law of diminishing returns to capital (correct)
  • Impact of saving on growth
  • Role of consumer spending
  • Investment as a function of saving
  • What is the main implication of Rostow's stages of growth model within the context of growth theories?

    <p>Growth rates vary significantly between countries.</p> Signup and view all the answers

    In relation to the Harrod-Domar model, what conclusion can be drawn about saving?

    <p>Savings are a proportion of total income.</p> Signup and view all the answers

    How do the growth theories discussed relate to the rapid growth of East Asian economies?

    <p>They provide different perspectives on growth influences.</p> Signup and view all the answers

    What aspect of economic development is overlooked by the Harrod-Domar model?

    <p>Diminishing returns to capital</p> Signup and view all the answers

    Which of the following statements best describes a limitation of the Keynesian Theory?

    <p>It does not effectively incorporate the concept of diminishing returns.</p> Signup and view all the answers

    What does the Harrod-Domar model suggest is necessary for maintaining a steady rate of growth of full employment income?

    <p>A rate of investment equal to the marginal propensity to save and capital-output ratio</p> Signup and view all the answers

    Which of the following best describes the warranted growth rate as introduced by Roy Harrod?

    <p>The growth rate at which all saving is matched by investment</p> Signup and view all the answers

    What is indicated by a lower capital-output ratio in the context of economic growth?

    <p>More efficient investment leading to a higher growth rate</p> Signup and view all the answers

    Which of the following factors is NOT directly mentioned as affecting economic growth in the Harrod-Domar model?

    <p>Technological advancements</p> Signup and view all the answers

    What are the two main factors that the Harrod-Domar model cites as determinants of economic growth?

    <p>Level of savings and capital-output ratio</p> Signup and view all the answers

    What is a key assumption of the power-balance theory regarding international trade?

    <p>Poor countries are primarily exploited by richer industrial countries.</p> Signup and view all the answers

    What is a potential drawback of maintaining a steady rate of growth in a capitalist economy as per the Harrod-Domar model?

    <p>Possibilities of secular inflation or secular deflation</p> Signup and view all the answers

    How do power-balance theories view the relationship between income levels and savings in poor countries?

    <p>Low incomes restrict the ability to save significantly.</p> Signup and view all the answers

    What consequence do power-balance theories suggest occurs due to the deteriorating terms of trade for poor countries?

    <p>Poor countries need to export more raw materials to maintain their position.</p> Signup and view all the answers

    According to the Harrod-Domar model, how is the warranted growth rate calculated if the saving rate is 10% and the capital-output ratio is 4?

    <p>2.5 percent</p> Signup and view all the answers

    Which of the following statements accurately reflects the balance of power concept in international relations?

    <p>It involves matching one's power against that of competitors, using alliances if necessary.</p> Signup and view all the answers

    How do higher savings influence economic growth according to the Harrod-Domar model?

    <p>They allow for greater investment in capital stock</p> Signup and view all the answers

    According to power-balance theory, which factor is claimed to inhibit agricultural productivity in poorer countries?

    <p>Low income levels resulting in limited financial resources.</p> Signup and view all the answers

    What has led to the discredit of power-balance theories in some regions like East and Southeast Asia?

    <p>The development of industrial capacity in these areas.</p> Signup and view all the answers

    Which of the following actions can states take to pursue a policy of balance of power?

    <p>Increase their military capabilities.</p> Signup and view all the answers

    Which factor contributes to the exploitation of poorer economies by richer ones, according to power-balance theories?

    <p>Structural dependency on raw material exports.</p> Signup and view all the answers

    What is the primary focus of the Fei-Ranis model regarding economic development in underdeveloped countries?

    <p>Shifting emphasis from agriculture to industry</p> Signup and view all the answers

    How does the Fei-Ranis model view the labor supply in underdeveloped countries?

    <p>Labor supply is abundant and not a limiting factor.</p> Signup and view all the answers

    What two sectors does the Fei-Ranis model identify in the context of a dual economy?

    <p>Primitive and modern sectors</p> Signup and view all the answers

    What role do saving and investment play according to the Fei-Ranis model?

    <p>They become the driving forces for economic development.</p> Signup and view all the answers

    What criticism is directed at the Fei-Ranis model?

    <p>It overlooks the impact of feudalism on agriculture.</p> Signup and view all the answers

    Why is agricultural output crucial in the Fei-Ranis model?

    <p>It must support the economy with food and raw materials.</p> Signup and view all the answers

    How do Fei and Ranis perceive the relationship between money and physical capital in production?

    <p>Money cannot replace physical capital in production.</p> Signup and view all the answers

    What is a key aspect of the developmental problem highlighted in the Fei-Ranis model?

    <p>The coexistence and interaction of both modern and primitive sectors.</p> Signup and view all the answers

    What primary factor contributes to the slower growth of industrial countries compared to rapidly growing poorer countries?

    <p>Lower rates of saving and investment</p> Signup and view all the answers

    What does the Fei-Ranis model primarily explain regarding economic development?

    <p>The process of industrialization and inefficiencies in dual sectors</p> Signup and view all the answers

    Which sector in the Fei-Ranis model typically has higher productivity and wages?

    <p>Modern sector</p> Signup and view all the answers

    What drives labor migration from rural to urban areas in the Fei-Ranis model?

    <p>Wage differentials between sectors</p> Signup and view all the answers

    What is one reason the services sector has historically seen low productivity growth in industrial countries?

    <p>Insufficient technological advancements</p> Signup and view all the answers

    Which aspect of human capital development is emphasized for economic growth in industrial countries?

    <p>Education and skills training</p> Signup and view all the answers

    How does the Fei-Ranis model classify economies?

    <p>As dualistic consisting of modern and traditional sectors</p> Signup and view all the answers

    What is a critical issue affecting the agricultural sector in the context of the Fei-Ranis model?

    <p>Low capital accumulation and skills</p> Signup and view all the answers

    Study Notes

    Economic Development Theories

    • Five main growth theories shape the understanding of economic development, particularly observed in East Asian economies.

    Keynesian Model

    • Emphasizes the significance of capital accumulation for economic growth.
    • The Harrod-Domar model links growth rate to saving levels and capital productivity.
    • Saving is a constant proportion of income defined as Y = C + S, where S represents saving and investment.
    • Explores requirements for sustained full employment growth without inflation or deflation.
    • Suggests that investment must grow in proportion to the marginal propensity to save and capital-output ratio.

    Harrod-Domar Model

    • Defines two questions: requirements for steady growth at full employment and the feasibility of long-term full employment equilibrium.
    • Economic growth depends on:
      • Level of Savings: Higher savings enhance investment capacity.
      • Capital-Output Ratio: A lower ratio indicates more efficient investment, leading to higher growth rates.
    • Introduces 'warranted growth rate' which is the rate at which savings are entirely invested, keeping the capital-output ratio constant.

    Power Balance Theory

    • Focuses on international dynamics of power and trade, affecting development levels among countries.
    • Explains how poor nations, exporting raw materials, face a deteriorating terms of trade against wealthier nations.
    • Suggests that low incomes hinder saving rates, limiting development prospects.

    Structuralist Theory

    • Highlights the jobs creation conflict between traditional agricultural sectors and modern industrial sectors.
    • The Lewis-Fei-Ranis Model differentiates between two economic sectors, analyzing labor movement and productivity disparities.
    • Proposes industrialization through labor shifts from low-productivity agriculture to higher-productivity industry.

    New Growth Theory

    • Not explicitly covered but serves as a modern continuation or critique of earlier theories, focusing on technological innovation and human capital as growth drivers.
    • It emphasizes long-term sustained growth influenced by knowledge and efficiency improvements in industries.

    Summary

    • Each theory offers insights into the complex mechanisms underlying economic growth, with emphasis on saving, investment, and international dynamics impacting development.
    • The application of these theories provides critical understanding for analyzing the economic trajectories of developing and developed nations.

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    Description

    Explore key concepts in economic development through this quiz on growth theories. Topics include the Keynesian Model, Harrod-Domar Model, Solow Theory, and more. Assess your understanding of these fundamental theories affecting economic growth.

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