Question

1. Explain the impact of increases in capital per worker on output per worker. Explain the difference in capital accumulation and technological progress in the growth process. When using any diagrams to answer this question ensure they are correctly and clearly labelled.
2. What does the Solow model say about growth in a country that has lost a large amount of capital (relative to its population) following an earthquake?
3. Explain the long-run effects of an increase in the saving rate on output per worker. When using any diagrams to answer this question ensure they are correctly and clearly labelled.
4. How might expansion of institutions devoted to production of ideas affect the growth process?
5. What elements of geography could be used to explain differences in growth across countries? When answering this question explain how geography might influence the adoption of particular technologies.  

Answer 1

THE FOLLOWING SOLUTION GIVEN BELOW:-

1) The impact of increases in capital per worker on output per worker are:-

If investment per employee exceeds depreciation per employee, the modification in capital per employee is positive: Capital per employee will increase. If investment per employee is a smaller amount than depreciation per employee, the modification in capital per employee is negative: Capital per employee decreases.

Difference between capital accumulation and technical progress in the economic growth are:-

Capital accumulation refers to a rise in assets from investments or profits and is one among the building blocks of a market economy. The goal is to extend the worth of associate degree initial investment as a come on investment, whether or not that be through appreciation, rent, capital gains, or interest whereas technological progress refers to the invention of latest and improved strategies of manufacturing product. Changes in technology result in a rise in productivity of labor, capital, and alternative factors of production. Technology refers to the method through that inputs area unit reworked into outputs.

2) Technically growth just refers to the period-over-period percentage change in a variable. In the media you hear lots of talk about current “growth” in GDP as a reference to the business cycle. When economists talk about growth, however, we are usually referencing changes in GDP at a lower frequency – i.e. thinking about the sustained increases in GDP over a decade as opposed to what’s happening quarter to quarter. The sustained increases in GDP over time dominate any discussion of what happens at higher frequencies.

Small growth rates can compound up to very big differences in levels over long time periods. If a variable is growing at a constant rate, its level j periods into the future relative to the present is given by (where gx is the constant growth rate): Xt+j = (1 + gx) jXt Suppose that we take the unit of time to be a year, and that a variable in question is growing at 2 percent. This mean that, relative to the present, the value of the variable will be equal to: Xt+10 Xt = (1 + 0.02)10 = 1.22 In other words, if a variable grows at 2 percent per year for 10 years straight, the level of the variable will be 22 percent bigger in 10 years. Suppose instead that the variable grows at 2.5 percent per year. 10 years later we’d have: Xt+10 Xt = (1 + 0.025)10 = 1.28 That extra half of a percentage point of growth nets 6 percentage points more growth over a 10 year period. The differences are even more remarkable if you expand the time horizon – let’s go to, say, 30 years, about the gap between generations. Growing at 2 percent per year, we’d have: Xt+30 Xt = (1 + 0.02)30 = 1.81 Growing at 2 percent per year nets us a level that is 80 percent higher after 30 years. Growing at 2.5 percent per year, we’d have: Xt+30 Xt = (1 + 0.025)30 = 2.10 With just a half of a percentage point more of growth per year, over a 30 year horizon the level of X would more than double, increasing by 110 percent. That extra half of a percentage point of growth, which on its own seems quite small, gets us an extra 30 percentage points in the level over 30 years. This is a big number. Current real per capita GDP in the United States is $50,000, give or take. If that were to grow at 2 percent per year for the next 30 years, per capita real GDP would be about $90,500. If instead we grew at 2.5 percent per year, 30 years from now real per capital GDP would be about $105,000. That’s about a $15,000 difference, which is big.

3) An increase within the saving rate results in a rise, then to a decrease, in consumption per employee in steady state. It takes a protracted time for output to regulate to its new higher level once a rise within the saving rate. place otherwise, a rise within the saving rate results in a protracted amount of upper growth. In other words, a higher saving rate will end in a better steady-state capital stock and a better level of output. The shift from a lower to a better steady-state level of output causes a brief increase within the rate. In some newer theories of growth, a better saving rate could for good raise the speed of economic process.

4) Economic growth is a rise within the production of economic merchandise and services, compared from one amount of your time to a different. It may be measured in nominal or real (adjusted for inflation) terms. historically, mixture economic process is measured in terms of gross national product (GNP) or gross domestic product (GDP), though various metrics are typically used.

In simplest terms, economic process refers to a rise in combination production in AN economy.Often, however not essentially, combination gains in production correlate with increased average marginal productivity. That ends up in a rise in incomes, exalting customers to open up their wallets and purchase additional, which implies the next

material quality of life or customary of living. In social science, growth is usually shapely as a perform of physical capital, human capital, proletariat, and technology. Simply put, increasing the number or quality of the operating age population, the tools that they need to figure with, and therefore the recipes that they need on the market to mix labor, capital, and raw materials, can cause increased economic output.

Economic growth is one amongst the foremost necessary indicators of a healthy economy. one amongst the largest impacts of semi permanent growth of a rustic is that it's a positive impact on value and therefore the level of employment, that will increase the quality of living. because the country’s value is increasing, it's a lot of productive that ends up in a lot of folks being utilized. This will increase the wealth of the country and its population. Higher economic process conjointly ends up in additional government income for state outlay, that the government will use to develop the economy. This growth may also be wont to cut back the deficit.

Additionally, because the population of a rustic grows, it needs growth to stay up its normal of living and wealth. Economic growth additionally helps improve the standards of living and scale back financial condition, however these enhancements cannot occur while not economic development. economic process alone cannot eliminate financial condition on its own.

The following six causes of economic process square measure key parts in Associate in Nursing economy. rising or increasing their amount will result in growth within the economy.

1. Natural Resources

The discovery of additional natural resources like oil, or mineral deposits could boost economic process as this shifts or will increase the country’s Production risk Curve. different resources embody land, water, forests and gas.

Realistically, it's tough, if not not possible, to extend the amount of natural resources during a country. Countries should beware to balance the availability and demand for scarce natural resources to avoid depleting them. Improved land management could improve the standard of land and contribute to economic process.

2. Physical Capital or Infrastructure

Increased investment in physical capital, like factories, machinery, and roads, can lower the value of economic activity. higher factories and machinery area unit additional productive than physical labour. This higher productivity will increase output. as an example, having a sturdy transportation will scale back inefficiencies in moving raw materials or product across the country, which might increase its gross domestic product.

3. Population or Labour

A growing population suggests that there's a rise within the availableness of staff or workers, which suggests the next manpower. One draw back of getting an oversized population is that it may lead to high state.

4. Human Capital

An increase in investment in human capital will improve the standard of the labour. This increase in quality would end in AN improvement in skills, abilities, and coaching. masterful|a talented} labour incorporates a important impact on growth since skilled employees square measure a lot of productive. for instance, investment in STEM students or subsidizing committal to writing academies would increase the provision of employees for higher-skilled jobs that pay over investment in blue-collar jobs.

5. Technology

Another powerful issue is that the improvement of technology. The technology may increase productivity with an equivalent levels of labour, so fast growth and development. This increment means that factories are often a lot of productive at lower prices. Technology is possibly to steer to sustained semi permanent growth.

5) The most putting truth concerning the geographic of the planet is that the uneven abstraction distribution of economic activity, as well as the being of economic development and underdevelopment. High-income regions square measure nearly entirely targeted in a very few temperate zones, half the world's GDP is made by 15 % of the world's population, and 54 % of the world's GDP is made by countries occupying simply 10 % of the world's acreage. The poorest half the world's population produces solely 14 % of the world's GDP, and seventeen of the poorest twenty nations square measure in tropical continent. The unevenness is additionally manifest inside countries and inside metropolitan concentrations of activity. The argue that understanding these problems is central for understanding several aspects of economic development and underdevelopment at the international, national, and subcontinental levels. They review the theoretical and empirical work that illuminates however the abstraction relationship between economic units changes and conclude that geographics matters for development, however that economic process isn't ruled by a geographic philosophical doctrine. New economic centers will develop, and also the prices of remoteness may be reduced. several express policy instruments are accustomed influence location selections. however none has been consistently prospering, and lots of are terribly costly-in half as a result of they were supported inappropriate expectations. Moreover, several seemingly abstraction policies that profit specific sectors and households have abstraction consequences since the targeted sectors and households aren't distributed uniformly across house. These abstraction policies will typically dominate expressly abstraction policies. additional work is required to higher perceive these dynamics in developing countries.