Q2

a. Consider a production function exhibiting constant returns to scale for country 1 and 2. On separate well labeled graphs show each of the following:(3x1 = 3 marks)

i) Differences in output per worker between 2 countries due to differences in factor accumulation.

ii) Differences in output between 2 countries per worker due to productivity differences between the countries.

iii) Differences in outputs between 2 countries for both i) and ii).

b. Given the 3 scenarios which graph is the most likely candidate to demonstrate the Catch-Up Effect and why? (3 marks)

c. This question is an application of Rule of 72. Consider a country for which GDP per capital doubles every 50 years. Calculate the annual growth rate for this country. Consider another country for which GDP per capita doubles every 25 years. Calculate the annual growth rate for the second country. Given everything else constant, calculate in how many years catch up effect will occur between the two countries when initially, the first country's GDP per capita is 4 times that of the second country? Explain your answer