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1. Trade and Growth (20 pts)
a. It is often said that trade acts like an increase in productivity, because it allows countries to produce and consume more. How is this possible? Explain in 4 lines. Consider the table below listing the cost of production for two countries, Brazil and China:
China Brazil Electronics (1 pound)
Soybeans (1 pound)
b. What is the opportunity cost (in soybeans) of producing one one pound of electronics in China? What is the opportunity cost of one pound of electronics in Brazil? c. In which sector should each country specialize? And how should they trade? d. List and explain 2 reasons why the conclusion in (c) is not always valid. That is, explain 2 reasons why the theory of comparative advantage would not always determine the direction of trade?
2. Openness in the Solow model (20 pts) a. For open economies, do rich countries grow faster than poorer countries? Why or Why not? Explain in 5 lines. b. According to the Solow model, what is the relationship between a country’s saving rate and its steady-state level of output per worker? Explain in 5 lines and with the aid of a graph. c. If the country is open, would the country’s saving rate matter for capital per worker, and output per work? Explain in 5 lines and with the aid of a graph. d. In the real world, is mobility of factors of production large enough to explain the relationship between openness and growth? Explain in 3 lines, particularly citing the relationship between domestic saving and investment.
3. Globalization (20 pts) a. In one paragraph, and with the aid of a graph, describe the pattern of globalization between 1870 and the present day. Ensure you discuss the different periods of globalization. b. Describe three important differences between the waves of globalization, in terms of flows in factors of production and the source/destination of those factors? c. List and explain 3 reasons for the rise of globalization? Describe each reason in brief detail. d. List 4 reasons why some might to opposed to rising globalization. Discuss each reason and provide counter-arguments.
4. Technology and Efficiency (20 pts)
a. What was Henry Ford’s major innovation to the technology of automaking? Explain in 5 lines. b. Explain 2 impacts of Henry Ford’s technological innovation on quantity, price, wages, and quality, in the automobile sector. c. What changes did Henry Ford implement in his factories in order to make the automobile production process more efficient? Describe at least 2 changes and how they impacted efficiency. d. Compare and Contrast the effects of Henry Ford’s technological innovations with the effects of the Green Revolution. Make sure you explain what is understood by the Green Revolution, and highlight key similarities and differences.
5. Technology and Growth (20 pts)
Consider the two-country technology transfer model, with a leader and a follower:
a. Suppose a country is a follower, what are the temporary and longer term impacts of increased research spending that remains below that of the leader? Explain with the aid of a graph. b. Suppose a country is a leader, what are the temporary and longer term impacts of increased research spending? Explain with the aid of a graph. c. What do your answers imply for the possibilities of a follower country catching up with a leader? Is leapfrogging possible? Explain using the examples of Japan and the United States. d. Give 2 examples of follower countries whose growth performance mirror the predictions from part (a), and describe why they confirm the predictions. e. Why is it difficult for some countries to catch-up by imitation? Explain in one paragraph.
6. Technology Creation and Patents (20 pts)
a. Briefly describe how technology is produced, and explain why a free market will under-produce new technologies. b. What are two strategies that economies can adopt to overcome the problem of underproduction of technologies in a competitive market? Explain why these strategies work and give one real-world example each. c. List and describe two reasons why patents might actually discourage innovation and the production of new technologies, and provide one instance of each in the real world. d. List and explain 4 reasons why there has been a productivity slowdown even when we have experienced rapid technological changes over the past 40 years.
7. Structural Change (20 pts)
Suppose technologies in the computer sector is growing more rapidly than in the rest of the economy and answer the following questions:
a. How does the differential technological progress impact the price of computers relative to the price of other goods and services? Make sure you state your assumptions. b. Assuming demand for all goods do not change, how would differential technological progress impact the quantity of computers relative to other goods and services? c. How does differential technological progress impact the share of expenditure devoted to the production of computers relative to other goods and services? Explain in one paragraph and once again state your assumptions.
7. Efficiency (20 pts)
a. What is inefficiency? Give 3 examples of inefficiencies in the real world, and explain why economists believe that inefficiencies are important for differences in incomes across countries.. b. List 4 reasons why inefficiencies might arise in an economy. Provide and explain a concrete real-word example of each reason for inefficiency. c. Using a simple graph, discuss the implications of misallocation across sectors on relative wages. d. List 4 reasons for misallocation across space,sectors, people, or firms. e. Describe 2 types of real world misallocation of factors of production. You are free to focus on labour or capital misallocation.
8. Government (20 pts)
a. Using a real world example, describe why the form of governance in a country is clearly important for economic performance. b. In contrast to your previous answer, provide and describe one real world example showing that the form of government might not patter for economic performance. c. Describe three reasons why the government should intervene for efficiency reasons. d. List four reasons rule of law encourages investments and productivity. e. Describe 2 of the reasons in (c) above in detail, 5 lines each.
9. Government Performance (20 pts)
a. Governments sometimes take actions that are harmful to growth in pursuit of other goals. Describe 2 examples of these other goals the government could be pursuing in 5 lines each. b. Some have claimed that corruption “greases the wheels of growth.” What does this mean? List and describe 3 arguments in favour of the claim.
c. List and describe 3 reasons why corruption is bad for growth. d. Overall, what is the relationship between corruption and growth across countries?
10. Efficiency vs. Technology (20 pts)
We want to evaluate the importance of technology relative to efficiency for Ghana’s relative productivity gap when compared to, the technology leader, the U.S. We use the decomposition below:
(Ai/Aus)= (Ti/Tus) X (Ei/Eus)
a. What information would you need to compute the relative efficiency gap? b. Given a relative productivity gap of .5 and technology growth of 1% a year in the U.S., what would be the relative technology gap if Ghana is 20 years behind the U.S.? c. What is the relative efficiency gap? How does the gap change if Ghana was 40 years behind the U.S.? d. From the above exercise, assess the importance of technology relative to efficiency in explaining Ghana’s productivity gap with the U.S.
11. Human Capital
a. How has human health changed over the past 300 years? Which countries have seen the greatest increases in health? Is height a good measure of health? Why? b. Discuss two reasons why improved health increases output per worker. Africa has seen an AIDS epidemic decimate a significant proportion of its working population, explain how the epidemic would decrease income per capita. c. Graphically describe how exogenous increases in health lead to an increase in output per worker? Illustrate and explain the health multiplier. d. There are two views on the positive relationship between income and health: one view emphasizes that the poor disease environment lowers incomes, and the second view emphasizes the fact that low incomes are responsible for poor health conditions. Discuss these views with the aid of graphs. e. Which of the two views above do you think is more plausible in the modern world? Justify your answer.
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