Quiz 4

Question 1

Solow model

Answer 1

understand why some countries grow fast and others not

Question 2

Production function

Answer 2

Y = F(K,L)

Question 3

Returns to scale

Answer 3

Constant: increase both K and L by same factor = output multiplied by same factor
Not constant: increase in K only but not L = less output than factor

Question 4

Constant returns to scale

Answer 4

λ Y = F( λ K, λ L)
-> y = f(k)

Question 5

2 assumptions of the Solow model

Answer 5

1) always possible to sell the good
2) all of Y goes back to the entrepreneur (secure property rights)
-> income split between consumption and savings

Question 6

Depreciation of capital stock formula

Answer 6

Kt = (1- δ) Kt-1 + It-1

Question 7

Propensity to save

Answer 7

people save a fraction of their income

Question 8

Positive force

Answer 8

propensity to save/investments
-> sf(kt-1)

Question 9

Negative force

Answer 9

depreciation of capital stock
-> -δk t-1

Question 10

Convergence

Answer 10

equilibrium, steady state, 0 long-run growth, when 2 curves meet

Question 11

all growth comes from:

Answer 11

1) rate of technical progress
2) propensity to save

Question 12

Pb with Solow Model

Answer 12

1) doesn’t work with extractive institutions bc no incentives to save, invest, educate
2) also not made for developing countries

Question 13

Solow residual

Answer 13

The Solow residual represents all factors that contribute to output growth beyond what can be attributed to increases in capital and labor: technological advancements, improvements in managerial efficiency, institutional changes, etc
-> y = Akα

Question 14

α

Answer 14

capital intensity

Question 15

structural change

Answer 15

the idea of fundamental change in the eco

Question 16

Lewis model

Answer 16

provides a framework for understanding the structural transformation of developing economies, particularly focusing on the transition from traditional agriculture-dominated economies to modern industrial economies

Question 17

Import substitution strategy

Answer 17

developing countries specialize in exports of primary commodities

Question 18

Prebish-Singer strategy

Answer 18

price of primary good tends to decrease relative to price of manufactured goods over time

Question 19

Washington Consensus

Answer 19

set of policies established by International financial institutions (World Bank, IMF)
privatization, trade liberalization, fiscal discipline
loans to developing countries against the implementation of SAPs

Question 20

current conditions for aid

Answer 20

1. precise formula
2. 16 criteria
3. scores between 1 and 6 by World Bank and country officials
4. CPIA (Country Policy and Institutional Assessment)

Question 21

4 categories of CPIA

Answer 21

1. eco management
2. structural policies
3. policies for social inclusion/equity
4. public sector management and institutions

Question 22

inclusive eco institutions

Answer 22

1. secure property rights
2. unbiased system of law
3. provision of public services that level playing field (education, roads, electricity)
4. permit entry of new businesses (access to credit = key constraint)
5. allow people to choose their careers

Question 23

inclusive political institutions

Answer 23

1. strong centralized state
2. pluralism:
   > checks and balances by judiciary
   > checks and balances by parliamentary system
   > free press
   > vibrant civil society
   > elections

Question 24

Country performance rating

Answer 24

CPR = (0.24 * CPIA 1 to 3 + 0.68* CPIA 4 + 0.08 * PPR)

Question 25

IDA Country Allocation

Answer 25

f(CPR ^3, Pop, GNI Per Capita^-0.125)

Question 26

Inclusive eco institutions

Answer 26

1. secure property rights 2. unbiased system of law 3. provision of public services that level playing field (education, roads, electricity) 4. permit entry of new businesses (access to credit = key constraint) 5. allow people to choose their careers