ECON 200 Lecture Notes - Lecture 19: Robert Solow, Malthusian Trap, Truancy

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Monetary = money supply = interest rates fed. Per-capita growth = capital deepening + human capital accumulation + productivity growth. Poverty traps poor because you are poor: circle of poverty. No savings to make school no schooling no wealth enhancement: only way out = subsidy = foreign aid. The poor lack savings so they can"t make wealth enhancing investments: they remain poor. Problem: money doesn"t always go where it will get the greatest return: dictators. Capital deepening: more physical capital leads to economic growth: people don"t know how to use new technology. Problems with capital deepening: ex. lots of tractors in sub-saharan africa that no one uses, imposing technology on people that don"t want it, no improvement in technology. Add human capital accumulation more education leads to economic growth: no lots of problems. Robert solow estimated the effects of capital accumulation on us economic growth in the 1950s. He found that it only (at best) explained 50% of economic growth.

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