5. The catch-up effect Consider the economies of Sporon and Gobbledigook, both o
ID: 1163214 • Letter: 5
Question
5. The catch-up effect Consider the economies of Sporon and Gobbledigook, both of which produce glops of gloop using only tools and workers. Suppose that, during the course of 50 years, the level of physical capital per worker rises by 4 tools per worker in each economy, but the size of each labour force remains the same. Complete the following tables by entering productivity (in terms of output per worker) for each economy in 2013 and 2063. Sporon Physical Cabour Force I Capit Output Productivity Year (Tools per worker) orkers) Glops of gloop) (Glops per worker) 2013 2063 30 3,000 15 30 3,600 Gobbledigook Physical Cabour Force Output Productivity Year (Tools per worker) orkers) Glops of gloop) (Glops per worker) 2013 2063 30 2,400 12 30 3,600 Initially, the number of tools per worker was higher in Sporon than in Gobbledigook. From 2013 to 2063, capital per worker rises by 4 units in each country. The 4-unit change in capital per worker causes productivity in Sporon to rise by a This illustrates the concept of with higher output. amount than productivity in Gobbledigook. for countries with low output to catch up to those which makes itExplanation / Answer
Country - SPORON
Year 2013
Labor force = 30 workers
Output = 3,000 Glops of gloop
Calculate Productivity -
Productivity = Output/Labor force = 3,000/30 = 100
The productivity in 2013 is 100 Glops per worker.
Year 2063
Labor force = 30 workers
Output = 3,600 Glops of gloop
Calculate Productivity -
Productivity = Output/Labor force = 3,600/30 = 120
The productivity in 2063 is 120 Glops per worker.
Country - GOBBLEDIGOOK
Year 2013
Labor force = 30 workers
Output = 2,400 Glops of gloop
Calculate Productivity -
Productivity = Output/Labor force = 2,400/30 = 80
The productivity in 2013 is 80 Glops per worker.
Year 2063
Labor force = 30 workers
Output = 3,600 Glops of gloop
Calculate Productivity -
Productivity = Output/Labor force = 3,600/30 = 120
The productivity in 2063 is 120 Glops per worker.
From 2013 to 2063, capital per worker rises by 4 units in each country. The 4-unit change in capital per worker causes productivity in Sporon to rise by a lower amount than productivity than productivity in Gobbledigook.
This illustrates the concept of catch-up effect, which makes it possible for countries with low output to catch up to those with higher output.
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