多恩布什宏观经济学第十版课后习题答案04

CHAPTER 4

GROWTH AND POLICY

Solutions to the Problems in the Textbook

Conceptual Problems:

1. Endogenous or self-sustained growth supposedly can be achieved by policies that affect a

nation's savings rate and therefore the proportion of GDP that goes towards investment.

The neoclassical growth model of Chapter 3 predicted that long-term growth can only be achieved through technological progress and that changes in the savings rate have only transitory effects. The endogenous growth model, however, predicts that countries with a higher savings rate can achieve higher long-term growth and that a nation's government can affect the long-term growth rate by implementing policies that affect the savings rate.

2. A simple model with constant returns to scale to capital alone implies increasing

returns to scale to all factors taken together, which could cause a single large firm to dominate the economy. However, such a model ignores the possibility that external returns to capital exist, in addition to the internal (private) returns. In other words, more investment not only leads to a higher and more efficient capital stock but also to new ideas and new ways of doing things, which can then be copied by others. Therefore, a single firm does not necessarily reap all of the benefits of increased output.

3.In the neoclassical growth model, an increase in the savings rate does not increase the

long-term growth rate of output. However, because of the short-run adjustment process, there is some transitional gain that will lead to a higher level of output per capita. In the endogenous growth model, however, the savings rate does affect the long-term growth rate of output.

4.a. Chapter 4 suggests that the key to long-term economic growth is investment in human

and physical capital with particular emphasis on research and development.

4.b. (i) Investment tax credits may potentially affect economic growth in the long run by

achieving a higher rate of technological progress.

(ii) R&D subsidies and grants lead to technological advances that will have private and

social returns. They are very effective in stimulating long-term economic growth.

(iii) According to the endogenous growth model, policies designed to increase the

savings rate will increase the long-term growth rate of output. However, empirical

evidence does not lend much support to that notion.

(iv) Increased funding for primary education has large private and social returns and

is therefore an excellent means to stimulate long-term growth, even though it may take a

long time until these policies have their full effect.

5. The notion of absolute convergence states that economies with the same savings rate and

rate of population growth will reach the same steady-state equilibrium if they have access to the same technology. The notion of conditional convergence states that economies that have access to the same technology and the same rate of population growth but different savings rates will reach steady-state equilibria at a different level of output but the same economic growth rate. There is empirical evidence to support the notion of conditional convergence across countries.

6. Endogenous growth theory assumes that the steady-state growth rate of output is

affected by the rate at which the factors of production are accumulated. Therefore, an increase in the savings rate would increase the rate at which the capital stock is accumulated and this would increase the growth rate of output. While this notion may be important in explaining the growth rates of highly developed countries at the leading edge of technology, it cannot explain the differences in growth rates across poorer countries.

For these countries, the notion of conditional convergence seems to hold.

7. Investing in physical capital will lead to a higher capital stock and to a higher level of

output in the short run, but often to the detriment of long-term growth unless there are significant external returns to capital. Therefore, investing in human capital is a better strategy, since it has high returns and leads to an increase in long-term growth.

8.a. A country that is able to choose its rate of population growth through population control

policies can shift the investment requirement down, thereby increasing the level of steady-state output. With a lower rate of population growth it is possible to achieve a higher level of income per capita with a lower level of investment spending. Therefore, implementing population control policies may be an effective way to escape the so-called poverty trap.

8.b. In an endogenous growth model, a lower population growth rate (n) will increase a

nation's long-term growth rate (∆y/y). We can see this since, in the second optional section, the per-capita growth rate was derived, as follows:

∆y/y = sa - (n + d).

9. The Asian Tigers (Hong Kong, Singapore, South Korea, and Taiwan) experienced a high

rate of economic growth between 1966 and 1990 by concentrating on improving the education of the population and increasing the savings rate, as suggested by the endogenous growth model. However, increases in the labor forces of these countries suggested by the neoclassical growth model, were also at work.

10. The decline in living standards experienced by Eastern European countries in transition