1. What is growth and why is it important? What role does innovation play in growth?
2. Where does economic growth ultimately come from? Why is this? Comment on its impact on real income.
3. How does savings affect growth? Use the Solow model diagram to show what happens if we decide to save more.
4. What is the golden rule level of capital?
5. How does a decrease in the population growth rate affect growth in the Solow model? Draw a diagram and explain why this happens.
6. What sorts of policies can negatively affect growth according to the Solow model?
7. What is the optimal tax rate on capital and why?
8. Are trade deficits necessarily a bad thing? Why or why not?
9. Suppose the government spends into a deficit. Show how a trade deficit may follow, and explain why this happens.
10. Suppose a politician claims that “Since Y=C+I+G+NX, we should protect exporters in order to stimulate GDP”. Is she correct? Why or why not?