Lily Henderson
S000153963
Short Assignment #1
1. A) Remittances are the funds that migrant workers send back to their families
or dependents in their home countries. In developing countries, remittances have
been found to contribute to a sizable portion of the GDP. Remittances can benefit a
country’s economy, especially if it’s considered developing, by giving the country the
ability to fund development by its own rules rather than rules set up by the World
Bank if the country is receiving money through institutions like that or similar ones.
B) The term coordination failure refers to the result of the failure of agents in
an economy to successfully coordinate their efforts due to the limitations or
restrictions in place within the economic system or faulty decision making, leading to
an equilibrium that is less desirable than the one that would be reached if there was
success. One microeconomic example is if a firm decides to produce at a level
based on the average level of production of similar firms in an area when a higher
level of production is optimal for that area’s economy. If the firms all coordinated to
raise their level of production, that optimal level could be reached, but because the
current average level of production is being used as the base determining factor, the
current suboptimal level of production is what occurs. A macroeconomic example is
if it would be optimal for a lowering of trade tariffs within an international economic
system to occur but doesn’t because the member countries do not coordinate but
rather compete on the basis of economic nationalism or similar justifications.
C) The term “idea gap” refers to when a nation lacks the knowledge that’s
necessary to create value in an economy. It is more common in developing countries
that do not have the education and access to information that industrialized nations
have. It contrasts with the term “object gap”, which is when a country lacks the
capital i.e. factories, roads, raw materials necessary to create economic value. To
close an idea gap within a nation, focus must be put towards how the country
interacts and communicates with the rest of the developed world and how they
process and absorb information.
D) The first component of economic growth is capital accumulation. This
refers to both human and nonhuman capital. Nonhuman capital includes things like
roads (infrastructure), factories, machines, and etcetera while human capital refers
to things like investment in education which increases the amount of available
human capital a nation possesses. The second component is population and labor
force growth. The amount of employable population affects the ability of a country’s
economy to grow. The third component is technological progress, which basically
means coming up with improved ways of doing things, like the assembly line or
developing a better more effective marketing strategy.
E) The term technological spillover typically refers to the positive effect that
happens when firms gain knowledge about technological advancements which then
can benefit firms that operate in the same industry/field as the new technology or
knowledge that has been discovered. An example of this is the social media industry
today with giant corporations like Snapchat, Instagram, and Facebook all feeding off
each other with things like stories, likes, filters, etc. When one company employs a
new technology, it does not take long for the others to replicate that technology,
which in turn benefits the whole industry overall, especially its consumers.
2. A) The first factor that distinguishes endogenous growth models from their
neoclassical counterparts is that they assume that economies are subject to
increasing returns to scale rather than constant returns to scale. This means that if
you double all input, you get more than double the output. The implication of this first
factor is that Solow’s model underestimates the impact of investment on human and
physical capital. The second distinguishing factor is that endogenous growth models
consider externalities. An example of this is Henry Ford’s development of the
production line system, which benefited not only his company but soon other
companies implemented this system and benefited from it as well. This positive
