Question

In: Economics

3. One One of the basic principles of classical growth theory is that over time, levels...

3. One

  1. One of the basic principles of classical growth theory is that over time, levels of economic activity should converge in most countries and that we would enjoy equal levels of prosperity. While we view some evidence of convergence, we also observe the continuation of stark and deep levels of global inequality
  1. In one small paragraph, use our production function analysis to explain why we might predict economic convergence.
  2. In an additional paragraph, use our production function analysis to explain why we might not be experiencing convergence.
  3. What country are you a citizen of (UNITED STATES)? Use the growth theory you have used in your previous answer to explain whether you are part of a country that is either:

1. Catching up to advanced capitalist countries,

2. Being caught up to by more rapidly growing countries, or

3. Still experiencing a big gap in living standards with no immediate prospects of catching up.

Briefly explain why the country you are a citizen of falls into the category you have chosen.

Solutions

Expert Solution

A. Production function analysis is when maximum amount of output can be attained from a given number of inputs. The convergence would occur because low-income countries would grow at a much faster rate, because of huge investments undertaken and physical and technological gains, while high income countries would grow at a slower rate because they have already reached that peak, now it is just a matter of sustenance.

B. Low income countries should have the necessary supportive economic infrastructure to get to that convergence. Society's performance is not guaranteed which generates discrepancy in the growth rate. Thus even if a country has the necessary technological gains, its human capital should concide with that rate of development in order for it to converge with the developed nations.

C. US is being caught up by more rapidly growing countries. As its growth rate is slowing down and other developed countries are growing exponentially.


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