4. The catch-up effect Consider the economies of Hermes and Gribinez, both of which produce glops...

4. The catch-up effect

Consider the economies of Hermes and Gribinez, both of which produce glops of gloop using only tools and workers. Suppose that, during the course of 30 years, the level of physical capital per worker rises by 5 tools per worker in each economy, but the size of each labor force remains the same.

Complete the following tables by entering productivity (in terms of output per worker) for each economy in 2020 and 2050.

Year	Hermes
	Physical Capital	Labor Force	Output	Productivity
	(Tools per worker)	(Workers)	(Glops of gloop)	(Glops per worker)
2020	7	30	1,800
2050	12	30	2,160

Year	Gribinez
	Physical Capital	Labor Force	Output	Productivity
	(Tools per worker)	(Workers)	(Glops of gloop)	(Glops per worker)
2020	4	30	900
2050	9	30	1,620

Initially, the number of tools per worker was higher in Hermes than in Gribinez. From 2020 to 2050, capital per worker rises by 5 units in each country. The 5-unit change in capital per worker causes productivity in Hermes to rise by a (larger/smaller) amount than productivity in Gribinez. This illustrates the (natural resources/human captial/catch-up/technology) effect.

Expert Solution

Hermes

Year	Physical Capital(Tools per worker)	Labor Force (Workers)	Output (Glops of Gloop)	Productivity (Glops per worker)
2020	7	30	1800	1800/30=60
2050	12	30	2160	2160/30=72

Gribinez

Year	Physical Capital(Tools per worker)	Labor Force (Workers)	Output (Glops of Gloop)	Productivity (Glops per worker)
2020	4	30	900	900/30=30
2050	9	30	1620	1620/30=54

Initially, the number of tools per worker was higher in Hermes than in Gribinez. From 2020 to 2050, capital per worker rises by 5 units in each country. The 5-unit change in capital per worker causes productivity in Hermes to rise by a smaller amount than productivity in Gribinez.

Change in productivity in Hermes due to a 5 unit change in capital per worker = [(72-60)/60]*100 = 20%

Change in productivity in Gribinez due to a 5 unit change in capital per worker= [(54-30)/30]*100 = 80%

This illustrates the catch up effect. The catch up effect states that poor or developing economies grow faster than the wealthier economies.

Rahul Sunny answered 2 years ago

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