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 amount of capital determines the amount of output being produced At each period, higher capital per worker leads to higher output per worker. Capital accumulation is the growth in wealth ie  assets as a result of investments or profits. Growth in wealth may be due to appreciation,rent, capital gains ,and interest.A large capital accumulation along with technological progress determines economic growth.Technological progress refers to innovation of improved and new methods to produce goods .Sotechnological progress shows increase in productivity and capital accumulation shows increase in wealth.

With the climatic disaster the level of capital stock decreases and output falls .There will be decrease in the return from physical capital but increase in the return from human capital as the climatic disaster damages physical capital but leaves the human pupulation unharmed.This may lead to increased investment in human capital.

A higher saving rate leads to higher steady state capital stock and higher level of output . This causes increase in the growth rate.A higher saving rate leads to higher rate of output per worker and higher growth rate of productivity in the long run.Thus an increase in the saving rate will lead to higher rate of output per worker.

Expansion of institutions help in the economic development.They determine the cost of transactions . They lead to economic growth in the form of contracts and enforcing contracts, increased availability of information etc. All these help to reduce the cost of transaction and also reduce uncertainty and risk of transaction.

There are different elements in geography and places and regions is one element which help in explaining differences in growth across countries.Different climatic zones and landscapes , high mountain regions and dry deserts ,may explain variations in growth.As for eg the differences in the growth between the highland and coast can be attributed to infrastructure growth and private assets.Adoption of communication technologiies affects the rates at which the organizations with different identities may be found in different locations . Development of technologies transcend space. Technologies reduce barriers to interaction.