REVIEW QUESTIONS
1. According to the growth accounting approach, what are the three sources of economic growth? From what basic economic relationship is the growth accounting approach derived?
2.
Of the three sources of growth identified by growth accounting, which one is primarily responsible for the slowdown in U.S. economic growth after 1973? What explanations have been given for the decline in this source of growth?3. How did technology increase U.S. economic growth in the 1990s?
4. Explain what is meant by a steady state. In the Solow model, which variables are constant in a steady state?
5. What types of government policies can increase long-run living standards?
6. Describe the main ideas of endogenous growth theory. What does it say about the role of government in economic growth?
7. What effect should each of the following have on long- run living standards, according to the Solow model?
a. An increase in the saving rate.
b. An increase in the population growth rate.
c. A one-time improvement in productivity.
8. What two explanations of productivity growth does endogenous growth theory offer? How does the production function in an endogenous growth model differ from the production function in the Solow model?
9. What types of policies are available to a government that wants to promote economic growth? For each type of policy you identify, explain briefly how the policy is supposed to work and list its costs or disadvantages. How does endogenous growth theory possibly change our thinking about the effectiveness of various pro-growth policies, such as increasing the saving rate?
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