EXERCISE4- Lang Ran Ecomsmic Grenth point) Suppose that a country in 2010 has a

Question

EXERCISE4- Lang Ran Ecomsmic Grenth point) Suppose that a country in 2010 has a GDP per capita that is equal to $20,000. Furthermore, suppose that GDP grows by 10% a year and that population holds steady at his current level. Using the rule of 70, in what year will this economy's GDP per capita quadruple? If the country's GDP grew by 5% a year, in what year would this economy's quadruple? Does the growth rate of an economy's GDP matter? EXERCISE 5-Productivity and Growth (10 points) The economy of Freeland estimates its aggregate production function as = 20 * Ki * 11 /2 a) Calculate the expression for the labor productivity or GDP per worker. (3 points) b) Assuming that Freeland has 100 workers, complete the following table. (7 points) K K/L Y/L 500 1,000 1,500 2,000

Explanation / Answer

(Exercise 4)

(a) Using rule of 70, Doubling period = 70 / Periodic growth rate

When GDP growth rate = 10%, Doubling period 70 / 10 = 7 years

So, GDP per capita will quadruple (increase 4 times) in (7 years x 2) = 14 years, i.e. in year 2024.

(b) When GDP growth rate = 5%, Doubling period 70 / 5 = 14 years

So, GDP per capita will quadruple (increase 4 times) in (14 years x 2) = 28 years, i.e. in year 2038.

(c) GDP growth rate does matter, because as per rule of 70, the higher (lower) the GDP growth rate, the lower (higher) the doubling period of GDP.

NOTE: As per Chegg Answering policy, 1st question is answered.

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