The Kaldor facts describe four patterns that have historically held true over th

Question

The Kaldor facts describe four patterns that have historically held true over the long run in advanced economies. Consider the following three scenarios: a In the past real GDP grew at 2.5% while the population grew at 1% However changing economic and social forces have resulted in the disap pearance of population growth. Since the labor force is no longer expand- ing, real GDP now grows at only 1.5% per year. b In preparation for World War 2, Germany greatly expanded its industry capabilities resulting in huge increases in the capital stock. During the war, much of Germany's capital stock was destroyed. Eventually, the economy recovered and the capital stock to output ratio returned to its initial level. c Technological improvements in robotics and Al lead to the replacement of human workers with robots in most industries. Despite the human labor force being reduced to a tenth of its old level, GDP per capita and real wages of those who remain employed continue to grow at approximately 2% a year. The unemployed subsist on welfare programs funded by the government Which of the preceding scenarios, if true, would provide the strongest evidence against the Kaldor facts?

Explanation / Answer

Statement “a” is correct because in past the GDP is growing at 2.5 and currently with 1.5 therfore the average GDP growth in long run is 2% the last statement of Kaldor’s facts says that the output (GDP) of a country grows with approximately 2-5% in long interval of time and this makes statement “a” correct.

As per Kaldor’s facts which consists of six statements regarding the economic growth, the statement “b” is correct because Kaldor’s fourth statement of economic growth says that the ratio of capital and output shows a constant trend over a long interval of time and hence “b” statement is correct.

Statement “c” can be used as an evidence against te Kaldor’s facts as it says that the GDP is growing with 2% for those who are employed while for unemployed people don’t contribute to GDP and hence the net GDP growth is less than 2% which is against Kaldor’s statements.

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