The Harrod-Domar Model is the simplest and best-known production function used
in the analysis of economic development. This model explains the relationship
between the growth and unemployment in advanced capitalist societies. However,
the Harrod-Domar Model is used in developing nations as an easy way of looking
at the relationships between growth and capital requirements. This model does
explain the differences in growth performances between countries. The model
allows you to predict an estimate of growth for a nation. Which can be compared
to predictions of growth for a different country. B) The “sources of growth”
is a different form of the production function. This new function gives the
analyst the ability to separate out the different causes of growth. The factors
of this equation concern the growth rate of any variable, share of income in any
input, national product, capital stock, labor, arable land & national
resources, and measuring the shift in the production function resulting from
greater efficiency in the case of inputs. Growth Accounting Analysis takes into
account of two conclusions that are due to the variations in the way different
economists carry out growth accounting. The analysis shows that the efforts to
measure the sources of growth have shown that increases in productivity really
account for the higher relation of growth. Also capital does not give as much to
growth as assumed in early growth models. Capital does play a major role in the
expansion of contemporary developing nations. An example of the analysis is in
the comparison of wages. Perhaps the wages of a high school graduate is
equivalent to the salary of 2 workers who have only had grade school education.
Also the earnings for a college graduate maybe twice the amount of a worker of
only high school education. C) Both the balanced and unbalanced growths predate
much of the quantitative work on patters of development. Balanced growth agrees
that countries have to develop a wide range of industries all at the same time
if they are ever to prosper in attaining sustained growth. This is when the
population of that nation will all have enough wealth to buy goods that they
produce. While in an unbalanced growth, only one or few industries prosper,
giving wealth to those only working in those areas. In a balanced growth mostly
everyone will prosper from the industry. Whereas in an unbalanced growth only a
selected few will achieve any gains. #2 A) Income distribution is split up into
two categories, functional and size distributions of income. Both distributions
of income are interrelated. Functional distribution of income shows how national
income is divided among factors of production, traditionally identified as land,
labor, and capital. This can be used to measure the productive contributions
made by the different factors. Size distribution of income shows the amount of
income of all functional kinds received by the rich, poor, & middle class
individuals or families and is often read as a direct measure of welfare. B) The
evidence regarding inequality and growth shows that it is necessary for economic
growth but there is not enough for improving the living standards of large
numbers of people in countries with low levels of GNP per capita. Sometimes
governments promote growth not just to increase the welfare of their citizens
but also to bigger the power and bring glory to the state and its rulers. For
example when a country buys missiles and nuclear weapons, they spend large
amounts of money, which do not really provide much benefit to the country’s
citizens. Also resources may be greatly invested in further economic growth,
with important utilization increases deferred to a later date. As well, the
income and consumption may amplify but only those that will benefit are those
who may not need them. As the saying goes, the rich get richer and the poor get
poorer. C) Some important strategies for achieving growth with equity are:
redistribute first, then grow; redistribution with growth; and basic human
needs. Redistribute first, then grow suggests mainly to confiscate from one and
assign to another. The affect that this has on income distribution is that it
spreads it out to everyone. The people who have a lot will not have as much
anymore and those who have none will have some now. This gives everyone an equal
opportunity to grow. Redistribution with growth says for the implementation of
policies that shape the pattern of development so that low income producers see
an increase in earning opportunities and at the same time obtain the resources
necessary to take advantage of them. A few ways to achieve this is with more
progressive taxation, public provision of consumption goods to the poor, and
development of new technologies that aid in the productivity of low income
workers. Basic Human Needs strategy aims at providing the poor with several
basic needs and services. These services and needs include staple food, water
& sanitation, healthcare, primary & nonformal education, and housing.
There also has to be proper implementation of this process. First there must be
adequate financing to provide these needs and services to the poor at cost. Also
certain networks are required to distribute these services in forms appropriate
for the poor in their areas. #3 A) Basic Human needs - the basic Human needs
include food, clothing, housing, education, health, clear drinking water, and
sanitation for all. B) Market Failures - In a Market failure, the government
interferes. There are seven qualities in market failure, which are: monopoly or
oligopoly, external economies, external diseconomies, infant industry, under
developed institutions, national goals, and macro economic imbalances. C) Import
substitution strategies - Import substitution is a policy that agrees with
export pessimism. The strategy requires government information to safeguard
local manufactures, and assume that markets would not work effectively for rapid
progress. D) Stabilization programs - Stabilization programs are intended to
increase inflation and rectify the other disproportions associated with it,
notably deficits in the government budget and in the balance of foreign
payments. E) Consistency and optimality - Consistent enables the person to know
what the possible way to solve that method is. Optimal is to get the most out of
the method. F) Lorenz Curve - Lorenz Curve is a graph that has cumulative
percentage of income on its vertical axis and on the horizontal axis is the
cumulative percentage of recipients. There is a 45-degree line. The farther the
Lorenz Curve bends away from 45-dgree lines greater is the inequality of income
distribution. G) Structural Change - structural change is a point of interest in
efforts to transform cities to enable their sustainable development. H)
Structural Reform - Increasing economic development in districts can have high
impact in output, which enhance the capital stock proportionally to other inputs
such as labor. A method of structural reform is Engel’s law.