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Questions and Answers
Which of the following is not a component of GDP when measured from the income side?
Which of the following is not a component of GDP when measured from the income side?
In the context of Malthusian growth, what is considered a potential solution to avoid increased poverty?
In the context of Malthusian growth, what is considered a potential solution to avoid increased poverty?
What distinguishes Smithian growth from other growth theories?
What distinguishes Smithian growth from other growth theories?
Which of the following measures is often called an alternative to GDP for assessing progress?
Which of the following measures is often called an alternative to GDP for assessing progress?
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According to Solow-Swan growth theory, what limits per-capita growth?
According to Solow-Swan growth theory, what limits per-capita growth?
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What is a critical weakness of GDP as a measure of economic progress?
What is a critical weakness of GDP as a measure of economic progress?
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In the Solow model, what does the term 'Solow residual' refer to?
In the Solow model, what does the term 'Solow residual' refer to?
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Which economic growth theory suggests that sustained growth is impossible due to limited resources?
Which economic growth theory suggests that sustained growth is impossible due to limited resources?
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Study Notes
Measuring Economic Growth
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Economic Output: Measured by Gross Domestic Product (GDP).
- Income Side: Sum of income earned within a country (wages, profits, rents).
- Production Side: Total production of goods and services within a country.
- Expenditure Side: Not discussed in detail.
- GDP per capita: GDP divided by population, representing income/production per person.
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Key Distinctions:
- GDP per capita level versus growth rate.
- Current prices versus constant prices (adjusted for inflation).
- Purchasing Power Parity (PPP) adjustment (e.g., international dollars) to account for differences in cost of living.
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Weaknesses of GDP:
- Ignores non-market activity (e.g., household production).
- Doesn't capture health improvements or the sustainability of growth.
- Disregards environmental impact.
- Doesn't measure happiness or political freedom.
- Some reliability concerns, especially in certain developing countries.
Theories of Economic Growth
Malthusian Growth
- Limited Growth: Subsistence goods (food, etc.) have limited growth capacity, while population growth is rapid.
- Stagnation: Increased income is absorbed by a growing population, leading to persistent poverty.
- Crisis Prevention: Only population control or disasters can prevent this cycle.
- No Sustained Growth: Long-term growth is not possible within this model.
- Historical Example: The 14th-century plague.
Smithian Growth
- Division of Labor: Specialization and division of labor drive growth.
- Market Orientation: Economy focuses on market-produced goods/services.
- Trade Expansion: Trade expands markets and further specialization.
- Example: A shoemaker specializing and trading for other needs.
Solow-Swan Growth
- Capital Dependence: Output depends on the amount of capital.
- Output Equation: GDP per capita (Y/L) = Capital per capita (K/L) plus Total Factor Productivity (TFP).
- Capital Dynamics: Capital increases with investment, decreases with depreciation.
- Growth Limitation: Diminishing returns limit per-capita growth based on capital alone.
Schumpeterian Growth
- Technological Advancement: New ideas, technologies, and innovations are central to sustained growth.
- Creative Destruction: New innovations replace old ones, leading to progress and improvements.
- Importance of Technology: Technology pushes production capability and overcomes diminishing returns.
- Sources of Growth: New products, cheaper goods, and service improvement.
- Creativity Drivers: factors that drive innovative societies are not discussed.
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Description
This quiz delves into the key concepts of measuring economic growth, particularly through Gross Domestic Product (GDP). It covers the different sides of GDP, its per capita calculations, distinctions between growth rates, and the limitations of using GDP as an economic indicator. Engage with questions that assess your understanding of these critical economic principles.
