Question

1. Refer to the per worker production function presented in Figure 1 on the next page. Explain what a movement from point A to B represents, and explain what a movement from point B to D represents. Which change would be the best for sustained (long run) economic growth?
   Real GDP per hour worked Y/L Production functions 17 000 Production 16 400 function2 16 000 Production function 15 000 0 Capital per hour worked, K/L $50 000 $60 000 $70 000 Figure 1. Per worker production function
   

Answer 1

The movement from A to B defines that given the technology constraints the capital of the economy has increased and i.e why the per capita GDP has increased. As y=f(k).

Now the later case I.e the movement from B to D is given the capital fixed technology augmentation happened. This is known as technology intensive growth and the previous case is called capital intensive growth.

Technology intensive growth is better in the long run rather than the capital intensive growth because capital can be depreciated. But technology can't be reversed.