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Briefly explain why initial levels of GDP might influence subsequent economic growth.

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Introduction

Q1 (A) Briefly explain why initial levels of GDP might influence subsequent economic growth. Economic growth is reflected by an overall improvement in the quality of life in a given country. This may include better health care, a cleaner environment and more freedom in terms of choosing work and leisure activities. During times of economic growth, the overall wealth of a country increases, as do the variety and abundance of goods and services. Economic growth is not easy to measure. A widely used for economic growth is changes in real gross domestic product (GDP) per capita, the final sales of goods and services in a country per person, adjusted for inflation. Economists track real GDP per capita over time to compare growth among countries and the effects of various factors of economic growth Consider the effects of an increase in real GDP. Such an increase represents economic growth. Thus, the study of the effects of a real GDP increase is the same as asking how economic growth will affect interest rates. Economic Growth is an increase in the real level of national output as measured by the annual percentage change in real GDP. It is also defined as a long-term expansion of the productive potential of the economy. Real GDP measures the value of goods and services produced within the economy adjusted for the effects of inflation. If national output falls we are in an economic recession. If real GDP starts to rise, then the economy is in a recovery phase. An economic slowdown means that the pace of growth is falling - but the economy is still expanding. The production function is a technical relationship that shows the maximum amount of output that can be produced using specified quantities of inputs given existing technology. It could be expressed formally as: Y = f (K, L) Where Y is potential output or GDP; K is the number of physical capital units; L is the number of labour units; the f, function never changes. ...read more.

Middle

A "steady-state growth path" is reached when output, capital and labour are all growing at the same rate, so output per worker and capital per worker are constant. The models economists believe that to raise an economy's long-term trend rate of growth requires an increase in the labour supply and an improvement in the productivity of labour and capital. Differences in the rate of technological change are said to explain much of the variation in economic growth between developed countries. The model treats productivity improvements as an "exogenous" variable meaning that productivity is assumed to be independent of capital investment. Endogenous growth economists believe that improvements in productivity can be linked to a faster pace of innovation and extra investment in human capital. Endogenous growth theorists stress the need for government and private sector institutions and markets which nurture innovation, and provide incentives for individuals to be inventive. There is also a central role for knowledge as a determinant of economic growth, Endogenous growth theory predicts positive externalities and spillover effects from development of a high valued-added knowledge economy, which is able to develop and maintain a competitive advantage in growth industries in the global economy. The main points of the endogenous growth theory are as follows: 1- The rate of technological progress should not be taken as a given in a growth model appropriate government policies can permanently raise a country's growth rate particularly if they lead to a higher level of competition in markets and a higher rate of innovation. 2- there are potential increasing returns from higher levels of capital investment. 3- Theory emphasizes that private investment in R&D is the central source of technical progress. 4- Protection of property rights and patents can provide the incentive to engage in R&D. 5- Investment in human capital (education and training of the workforce) is an essential ingredient of growth. In the recently developed new growth theories, human capital is a separate factor of production. ...read more.

Conclusion

acceptable .the clean development mechanism CDM allows an industrial country to earn credits towards, it's a emission reduction targets by investing in an emission reducing project in a low income country, the idea behind emission trading is hat an industrial country can increase the maximum level of GHG emissions , its allowed during asset period by buying an used allowances from another industrial country. There is also the fear that the sacrifice will be futile if emission from low-income country, increase on a business as usual basis. A serious problem with carbon trading is that government intervention is required to define property right, that is to set the targets for GHG emission reduction for each country and hence the number of permits that can be issued. Without property right, there is nothing to be exchanged. It seems that there are two reasons for being skeptical about the benefits of market; first, the argument for market reducing costs and achieving a locative efficiency is based on the model of perfectly competitive markets. Second, there is a nature of the costs to be reduced. You might have felt that the political rather that the economic nature of the US costs of abatement undermines its case. In the other hand, it could be argued that political resistance in the USA to GHG emissions reduction program is the most serious obstacle to climate change abatement, the economic case for emission trading rests in part on the reduction of the costs of abatement precisely because lower cost would make an agreement on a GHG emission reduction program more politically acceptable. A sustainable economy would be one in which economic activity is organized in recognition of these limits. It is unlikely that such on economy could be constructed on the foundations of contemporary market norms and behaviors. Market can contribute most effectively to climate change policy by being used to achieve objectives set through the political process. Section :202 Tutor :Draimah Al-Otaibi ?? ?? ?? ?? TMA 06 DD202 1 ...read more.

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