(1) What is growth accounting? Assuming a production function. Y = A f (k. 1), provide...

 

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(1) What is growth accounting? Assuming a production function. Y = A f (k. 1), provide an intuitive explanation for the following equation. Define all terms. rk wl Ÿ= A + -kt Af(k. 1) -1 Af(k, 1) (ii) Consider the following statement, made by a leading economic commentator about China. China has historically maintained a high rate of savings. When reforms were initiated in 1979, domestic savings as a percentage of GDP stood at 32%. However, most Chinese savings during this period were generated by the profits of SOEs, which were used by the central government for domestic investment. Economic reforms, which included the decentralization of economic production, led to substantial growth in Chinese household savings as well as corporate savings. As a result, China's gross savings as a percentage of GDP is the highest among major economies. The large level of domestic savings has enabled China to support a high level of investment. In fact, China's gross domestic savings levels far exceed its domestic investment levels, which have made China a large net global lender. Source: Congressional Research Service Using the intuition behind the growth accounting equation in part (1) explain the main contributing factor(s) of recent growth in China. (3 marks) (1) What is growth accounting? Assuming a production function. Y = A f (k. 1), provide an intuitive explanation for the following equation. Define all terms. rk wl Ÿ= A + -kt Af(k. 1) -1 Af(k, 1) (ii) Consider the following statement, made by a leading economic commentator about China. China has historically maintained a high rate of savings. When reforms were initiated in 1979, domestic savings as a percentage of GDP stood at 32%. However, most Chinese savings during this period were generated by the profits of SOEs, which were used by the central government for domestic investment. Economic reforms, which included the decentralization of economic production, led to substantial growth in Chinese household savings as well as corporate savings. As a result, China's gross savings as a percentage of GDP is the highest among major economies. The large level of domestic savings has enabled China to support a high level of investment. In fact, China's gross domestic savings levels far exceed its domestic investment levels, which have made China a large net global lender. Source: Congressional Research Service Using the intuition behind the growth accounting equation in part (1) explain the main contributing factor(s) of recent growth in China. (3 marks)

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1 Growth accounting is a method used by economists to identify and measure the sources of economic growth It involves decomposing changes in economic ... View the full answer