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ECS3705 Assignment 2 (DETAILED ANSWERS) Semester 2 2024 - DISTINCTION GUARANTEED
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Summary History of Economics
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Samenvatting DEC-22803 Theorists of Economic Growth
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Hier staan enkele voorbeeldvragen die op het examen zouden kunnen worden gesteld(doch niet noodzakelijk):
1. What, according to the mercantilists, determines a country’s wealth?
According to the mercantelists, the wealth of a nation depends on its amount of gold; the stock of precious
metals.
2. According to Smith, accumulation of capital is a key determinant of economic growth because it promotes the
division of labour. Explain.
Accumulation of capital more capital labor will be divided and everyone will do a small part of the
production chain of a product (monotonous work) productivity of labor rises rise of income per capita
economic growth
3. Classical economists like Smith argued that, in the end, workers will only earn a subsistence level of wages.
Discuss two reasons for this point of view.
1. Smith: an unequal income distribution in favor of the capitalists/entrepreneurs is of social importance, because
only the industrial class of entrepreneurs save and invest (capital accumulation).
2. Ricardo: wages fund doctrine: an increase in the real wages, will result in a growth of the population, which
will eventually bring the wage back to it’s former, subsistence level of wages (iron law of wages).
4. Explain the main lines of Ricardo’s theory of land rent.
Land rent exists because of 1. Scarcity of fertile land and 2. Law of diminishing returns.
The marginal product reduces using a second dose on the same land (intensive margin), so when the marginal
product of land A diminishes, land B is brought into production (extensive margin).
Landowners will raise more rent on more fertile land (because these are more valued).
Residual = output – rent this is the profit for the capitalist.
Ricardo wants an abolishment of the corn law, because: Rejection corn law more competition 1. Price of
grain to the marginal costs of the highest-cost unit 2. Rents will be paid to the landlords owning the most fertile
rent 3. Equal profit rate on all lands so 3 reasons why rejection of the corn law is better for the agricultural
sector.
5. What did Malthus mean by “preventive checks” and by “positive checks”? Explain the role of these checks in
Malthus’s population theory.
Malthus’ population theory: population tends to grow faster than food supply. (population geometrically and
food supply arithmetically)
2 types of checks preventing a population explosion:
1. Preventive checks: postponement of marriage and moral restraint (decreases fertility rate)
2. Positive checks: war, illness, famine (increases death rate)
6. Why did the classical economists believe that the economy would eventually not grow anymore and arrive in a
stationary state?
Smith: rate of profit would eventually fall and investment opportunities would diminish.
Ricardo: scarcity of agricultural land will cause a stationary state. Population grows fast even land with
lower fertility will be used land rents will rise (cause land more valuable) profits of capitalists decline
economy won’t grow anymore = stationary state.
Mill: capital accumulation falling rate of profit diminish investment stop economic growth.
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