MACROECONOMICS
14th Edition
ISBN: 9781337794985
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 7, Problem 3DQ
To determine
To describe: The steps taken to slow the pace of capital formation.
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Students have asked these similar questions
=
5√K and has a capital
Country A produces GDP according to the following equation: GDP
stock of 13,399. If the country devotes 13% of its GDP to producing or repairing investment goods,
how much is this country currently investing?
Rounds your answer to two decimal places.
China invests almost 50 percent of its annual production in new capital compared to 15 percent in the United States. Capital per hour of labor in China is about 25 percent of that in the United States. Explain which economy has the higher real GDP per hour of labor, the faster growth rate of labor productivity, and which experiences the more severe diminishing returns.
Lucas paradox indicates that
Labor productivity should increase in poor countries in low rates.
The law of diminishing marginal productivity of labor indicates that an extra $1
of capital per worker will increase labor productivity more in a poor country
where capital stock per worker is low. This implies that capital should flow from
rich countries to the poor.
The observation that capital doesn't flow from the rich to the poor countries
hence contradicting the above theory is called the Lucas paradox.
poor countries have the lowest level of inflation.
poor countries grow fast but remain poor.
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