a) Suppose the economies of Country A and Country B are the same in every aspect,...

Transcribed Image Text:

a) Suppose the economies of Country A and Country B are the same in every aspect, except that Country B has more people. Assume that the population in both countries will remain constant over time. Which country has higher real GDP? Which country has higher real GDP per worker? Explain your answer with the aid of the production function. b) We learned two conditions about the production function, Y= A F(L, K, H, N), one is the "constant return to scale", and the other is the "diminishing return to capital". Are these two conditions about the same production function contradictory to each other? Explain. c) Country P is a developing country, and Country R is developed country. Currently the per capital real GDP are $25,000 in Country P and $50,000 in Country R; but the real GDP had been growing at 15% per year in Country P, and only at 2% per year in Country R. Some people predict that the high growth rate in Country P will enable it to become a richer country than Country R in 6 years. Their prediction is based on the calculation 25,000×(1+15%) >50,000×(1+2%). Do you agree with this prediction? Give your reasons for agreeing or disagreeing with it. d) We learned in the lecture that one policy to achieve economic growth is to encourage saving and investment. But is it true that the more people save and invest in an economy, the better it is for them? Briefly explain. a) Suppose the economies of Country A and Country B are the same in every aspect, except that Country B has more people. Assume that the population in both countries will remain constant over time. Which country has higher real GDP? Which country has higher real GDP per worker? Explain your answer with the aid of the production function. b) We learned two conditions about the production function, Y= A F(L, K, H, N), one is the "constant return to scale", and the other is the "diminishing return to capital". Are these two conditions about the same production function contradictory to each other? Explain. c) Country P is a developing country, and Country R is developed country. Currently the per capital real GDP are $25,000 in Country P and $50,000 in Country R; but the real GDP had been growing at 15% per year in Country P, and only at 2% per year in Country R. Some people predict that the high growth rate in Country P will enable it to become a richer country than Country R in 6 years. Their prediction is based on the calculation 25,000×(1+15%) >50,000×(1+2%). Do you agree with this prediction? Give your reasons for agreeing or disagreeing with it. d) We learned in the lecture that one policy to achieve economic growth is to encourage saving and investment. But is it true that the more people save and invest in an economy, the better it is for them? Briefly explain.