1. Describe the Harrod-Domar growth model, and explain precisely how the model illustrates dynamic instability. Why is it often called the “knife’s edge model”?
2. After reading about the Solow growth model, which concludes that continued economic growth requires continual innovation, and Schumpeter’s dynamic growth model, does the combination of these two models provide an adequate model of technological change and economic growth? What exactly determines the rate of technological progress? Finally, how would you work the variables contained in these models into the Harrod-Domar growth model?
3. Another question lurks behind nearly all discussions of macroeconomic policy: Why should we be so fearful of inflation? Provide your take on the emphasis by most central banks on preventing inflation.