Question 1
a. Consider a production function exhibiting constant returns to scale for country 1 and 2. On separate
well labeled graphs
show each of the following: (3x1 = 3 marks)
i) Differences in output per worker between 2 countries due to differences in factor accumulation.
ii) Differences in output between 2 countries per worker due to productivity differences between the countries.
iii) Differences in outputs between 2 countries for both i) and ii).
b. Given the 3 scenarios which graph is the
most
likely candidate to demonstrate the Catch-Up Effect and why?
c. This question is an application of Rule of 72. Consider a country for which GDP per capital doubles every 50 years. Calculate the annual growth rate for this country. Consider another country for which GDP per capita doubles every 25 years. Calculate the annual growth rate for the second country. Given everything else constant, calculate in how many years catch up effect will occur between the two countries when initially, the first country’s GDP per capita is 4 times that of the second country? Explain your answer
Question 2
a. Explain the impact of rise in
rate of
capital dilution (based on population growth = n) on the speed of convergence to steady state in the context of Solow growth model. Explain in terms of the change in the speed of convergence equation
with properly explained notations
and a
well labeled
graph as explained in the appendix for Chapter 3 to answer this question. (3 +3 = 6 marks)
b. Use a
well labeled graph
depicting the Malthusian model to show what happens to a country’s population size and per capita income
in the short run and in the long run
due to COVID-19 in which productivity of workers is adversely affected suggesting less output is produced now (Y is falling). Explain your answer in few sentences. (4 marks)