paul romer on growth august 27, 2007 why is growth important
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Economic growth refers to the increase in the production of goods and services in an economy over a period of time, typically measured by the rise in Gross Domestic Product (GDP). Show more…
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In an interview, Paul Romer noted that in the traditional theory of international trade, trade between England and Portugal benefits both countries because the countries will have a comparative advantage in producing different goods. (You may want to review Chapter 9, Section 9.3 to refresh your memory on this point.) Romer notes that in the new growth theory, "if there's more people—even more people that are remote from me: I don't know all of them, I don't like 'em—it may still be good to have them around because . . . they might discover something valuable." And he draws this conclusion: "And the usual story about gains from trade says it's good that Portugal exists. The new insight is that 'It's good that the Portuguese exist.'" Source: Paul Romer, "Paul Romer on Growth, Cities, and the State of Economics," econtalk.org, April 22, 2019. a. Briefly explain Romer's reasoning. A. The more people there are, the more likely it is that additional knowledge will be accumulated, increasing the rate of economic growth. B. More people means that countries will be able to share new technologies and not have to invest in developing new technologies. C. When two countries trade, both countries can benefit from trade, but the country with the most people will benefit more from trade. D. The more people there are, the greater the need for physical capital, and an expanding capital stock increases the rate of economic growth. b. Is the existence of the Portuguese more important in the new growth theory or in Robert Solow's original growth model? Briefly explain. A. Solow model, because it proves that a country's knowledge capital is more important to economic growth than its natural resources. B. New growth theory, because it proves that a country's natural resources are more important to economic growth than its knowledge capital. C. New growth theory, because it provides a more complete explanation of what causes technological change. D. Solow model, because it provides a more complete explanation of what causes technological change.
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Jerelyn N.
Why is economic growth important? Why could the difference between a 2.5 percent and a 3 percent annual growth rate be of great significance over several decades? LO1
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