PP 430

Seminar 2

Seminar 2

• Theories of Economic Development• Unit 2 Assignment

Theories of Economic Growth

• Two theories touch on Classical and Neo-classical theories of Economic Growth, which normally address Economic Growth as the end result of human interaction in the pursuit of private gain. – Keynesian Economics– Supply Side Economics

Keynesian Economics

• The idea that government, usually at the national level, needs to use fiscal measures (tax cuts and spending increases, or tax increases and spending cuts) to correct for problems endemic to the private sector in the macroeconomy.

• Government policies which stimulate employment and price stability will stimulate aggregate demand.

Supply Side Economics

• The counter to Keynesian economics that holds that government, usually tax rates and trade barriers, will likely act as detriments to private sector growth and entrepreneurship and must be minimized if to promote maximum Economic Growth.

Supply Side Economics

• In other words, economic growth can be most effectively created by lowering barriers for people to produce (supply) goods and services, such as reducing tax rates, and by allowing greater flexibility

• Therefore, consumers will then benefit from a greater supply of goods and services at lower prices.

Theories of Economic Growth

• These are time-honored theories, though they remain highly controversial among scholars and policy makers, mostly because they lend themselves to manipulation for political and ideological reasons.

• For this is a major facet of policy making—the political and partisan use, or abuse, of academic concepts. This is common and unavoidable in the real world.

Theories of Economic Growth

• Economic Growth and Development are never analyzed and policies never formulated in a vacuum.

• Real-world policy makers bring their biases and preference with them.

• This must be kept in mind when analyzing policies and policy-making procedures and decisions.

Theories of Economic Growth

• More recent theories on Economic Development. – The Hausman-Rodrik-Velasco Growth Diagnostics

theory and Kremer’s O-Ring Theory of Economic Development touch on how to make the returns to Economic Growth are distributed and employed more evenly and efficiently than the free (or freer) markets initially produced.

Unit 2 Assignment• In a short paper, explain how the Keynesian and

Supply Side economic theories would respond to the following national policies aimed at promoting economic growth and development:– President Obama s Stimulus Plan passed in early �

2009, made up of almost $800 billion in new federal spending on "shovel ready" public infrastructure and other projects.

– The Obama Administration s decision to allow the �Bush Tax Rate Reductions to expire at the end of 2010. This would raise the top tax rates on Dividends and Capital Gains back to their pre-2003 levels.

Unit 2 Assignment

• In your paper, you do not have to discuss the details of each policy, just their basic nature and stated goals and how one would use these two prominent academic theories to assess their role in promoting Economic Growth and Development.

Unit 2 Assignment

• Length should be 1-2 pages, excluding cover page and references

• Writing should be well ordered, logical, and unified, as well as original and insightful.

• Appropriate citation style should be followed.• Assignment should be in APA format• Please review the grading rubric for the

assignment in DocSharing

Unit 2 Assignments

• Read Chapters 5, 6, 12, 12 and 13 in the Taylor text and Chapters 3 and 4 in the Todaro text

• Participate in Discussions• Submit your Unit 2 Assignment

• Please contact me with any questions!