ECON 374
Intermediate Macroeconomic Theory II
--week 1 (Assignment 1)
Short-answered questions (10’*3=30’)
State the components of GDP in an open economy.
a) Consumption: This includes the total spending by households on goods and
services.
b) Investment: This represents spending by businesses on capital goods, such as
machinery and buildings, as well as changes in inventories.
c) Government spending: This encompasses government expenditures on goods
and services, including public infrastructure and salaries of public sector employees.
d) Net exports: This is the difference between exports (X) and imports (M). It
represents the value of goods and services produced domestically and sold abroad
minus the value of goods and services imported from abroad.
2. List the factors will affect the long-run economic growth.
a) Capital investment: Increased investment in machinery, equipment and
infrastructure increases productivity and stimulates economic growth.
b) Human resource development: investments in education, health and skills
training can improve the quality and productivity of the Labour force.
c) Advances in technology and technology: Advances in technology and
innovation can increase productivity, efficiency and economic growth.
d) Efficient use of natural resources: Access to and efficient use of natural
resources can have a positive impact on economic growth, particularly in resource-rich
countries.
e) Engaging in trade and globalization: Integration into the global economy
through trade and investment can promote economic growth by facilitating the flow of
goods, services and capital.
f) Stable domestic economy: Stable inflation, sound fiscal policy and a wellfunctioning financial system can create an environment conducive to sustained
economic growth.
3. Compare economic growth and economic development.
Economic growth is usually measured by changes in a country's real GDP volume.
The main focus is on quantitative expansion of the economy. Economic development,
on the other hand, encompasses a broader definition that includes quality improvement
in all aspects of human life. It involves not only economic growth, but also
improvements in education, healthcare, living standards, income distribution,
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infrastructure and institutional frameworks.
essay questions (70’)
ii.
Why there are some countries are rich but some countries are poor? (20’)
Some countries are rich and some countries are poor because of the large gap
between rich and poor in this country, and some of the key factors causing the gap
between rich and poor. First, the historical events of a country, such as invasion and
being invaded, have a lasting impact on the country's economic development. For
example, colonial countries are often resource-depleted and subject to exploitative
economic systems, which hinder their development. Secondly, a country's geography
and natural resources. The availability of natural resources such as oil, minerals and
fertile land has a significant impact on a country's wealth. Resource-rich countries often
have an advantage in generating income and attracting investment. Finally, the stability
and governance of a country's politics. Political environment and governance structure
play a crucial role in a country's economic development.
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Based on the below diagram, evaluate why is the United States richer in 1960 than
other nations and able to grow at a steady pace thereafter? (25’)
I think the reason why the United States was so much richer in 1960 than other
countries is probably because. First, technological leadership. The United States has
historically been at the forefront of technological innovation. In the middle of the 20th
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century, it made major advances in various fields, including manufacturing, aerospace,
telecommunications and computing. Technological advances can increase productivity,
efficiency and overall economic growth. Second, it has strong capital accumulation.
The United States has a relatively developed capital stock in infrastructure, machinery
and equipment. Capital accumulation is an important determinant of economic growth
because it increases output and raises productivity levels. Third, have human capital
advantage. The United States has a well-educated and skilled workforce, which is
essential to economic development. Investments in education and training contribute to
the formation of human capital and to the productivity and innovation of the economy.
Finally, the United States had a relatively stable and democratic regime and a fairly
good approach to national welfare.
3.
Using solow-Swan model to evaluate how technical progress affect the production
process? (25’)
Based on the Sollo-Swan model, technological progress and innovation play a vital
role in the production process. The model shows that technological progress and
improved efficiency are the key drivers of economic growth. When technological
progress occurs, it increases productivity and allows more output to be produced with
the same amount of inputs. This leads to an increase in the steady-state level of output
per capita. I think, in the context of the United States in 1960, it was able to experience
steady economic growth in part because of advances in technology and efficiency.
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