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Final Exam Study Review

Economics for Management Studies
Course Code
Garth Frazer
Study Guide

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ECMC66 Final Exam Summary – Frazer
Development definition
Income/capita, not very good measure; we discussed reasons why
Development more than income, as noted by Sen the notion of Human Freedom
Human Freedom: not only democracy, but capability to be educated, freedom in
Sen: influential in holistic view of development and the Human Development Index
Human Development Index: measure of Income, Health and Education
Not a full measure of human welfare or different industries
Does not capture human development for developed countries
When studying development, interested in separating income, education, health etc
Useful to look at 2 of these dimensions helps explain lots of differences in
We also took a look at economic growth, analyzing different models (just need to know
manipulations no derivations needed)
Harrod-Domar Model:
2 assumptions: constant savings rate and a capital output model
Technology can help improve long run growth rate
Increases in savings do lead to growth
Constant capital output ratio
Solow Model:
Diminishing returns to capital stock
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Short-run growth depends on steady-state of a country
Long-run per capita growth of zero
But in the real world, we see positive Long-run growth
What are we missing?
Productivity increases over time
Gave LR capital growth, but this is an exogenous explanation
How about an endogenous explanation
Solow Model w/ Tech Progress
Where does productivity come from?
Capital externalities
Endogenous research and development
Existence of human capital
Returns to capital: extremely high in developing countries since its low
Lower human capital in developing countries vs developed
Barro Model:
Examined unconditional convergence by simple Solow Model
Done through holding no differences across countries
Conditional convergence did hold
Did find lower income countries grew more
Increases in savings > Investment: increases in growth for developing countries
Got sign of coefficients correct for Solow Model w/ Tech
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