IDSB01 - Lecture 3

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31 Mar 2011
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IDSB01 Week 3: How Economic Growth Happens
MIDTERM: OCT 24: 3-5, GYM
-25 35% = short answer, multiple choice, definitions
-60 65% = longer answers, essays-type; diagrams
-60 75% based on lectures
-Readings: include a bunch of chapters from text and articles
oWould help a lot on short answers, help expand on long-answers
-No numbers, not a memory test. Sometimes numbers (important numbers, but not like
how many people died in blank war?, numbers that help in knowing a theory though)
How Economic Growth Happens
-No way to get everybody out of poverty unless average productive capacity of population
is reasonably high
oGrowth
Why are people better off in a rich country (France, USA) as opposed to a low income country
(Haiti)? (direct and indirect answers)
-Weak resource management
Relates to lacking basic needs (?)
-Effective use of Labour
oAllocation of labour for most productive uses
oDelegation of tasks
-Direct Determinants causal factors
oNatural Resource Endowment
oInvestment
oClimate
Leading to natural disasters (set-backs)
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Food problems
oPsychology
Technological Difference
-Indirect Determinants determine direct causes, background determinants
oPolitical Accountability (Democracy?)
oColonialism
Powers got rich in part due to exploitation of colonies which lowered the
income of the colony
Explains richness of rich country and poorness of low-income colonies
oWars
WWI and WWII (Intl wars)
USA gained on both on more than one mechanism
Many European countries (esp. WWII) lost alot of ground, suffered
damage, but USA/Canada had no war on their own soil, no
destruction.
Civil wars (conflicts)
Typically low-income countries as opposed to countries that
maintain internal peace
Economic Outputs
-level of output (GDP) = [f(natural resource endowment, investment, labour force *size*,
technology)]
oFactors of Production
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Basically inputs (direct factors) that lead to potential output (indirect); Inputs that we have (major
determinants) of output we CAN get
potential possible to mismanage economy, can have lots of
resources, but output can fall way short of what it could be 
Underproduction of an economys potential
E.g. The Great Depression: mismanagement
Resources were simply unused, unemployment (unused labour),
prices were too low led to plant closure (aggregate demand was
too low demand side problem)
Key problems: underutilization of resources + misallocation of
resources
f(factors of production + key problems + intl terms of trade)
GDP / Population
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