Question

CountryCurrent real GDP/person Country A Country B Country C Country D $13 690 $15 468 $6 343 $1 098 Current Growth Rate 1.98% 2.03% 3.12% 0.61% Hints: See pp.137-138 in Chapter 7 of the course text book, along with TYU Problem 3 in the Chapter 7 Student Package. a] Which country is the richest? How do you know? b] Which country is advancing most quickly? How do you know? te] Which country would likely see the greatest benefit from an increase in physical capital investment? Why? [d] Referring to [e], would this country continue to see the same degree of benefits from an increas investment forever? Why?

Answer 1

Country B is the richest because it has largest current real GDP per person i.e, $ 15468 country c is advancing more quickly because it has the largest growth rate, i.e, 3.12 % Country D would probably see the greatest benefit from an increase in capital investment, because country D is the poorest and probably have the least capital. Since capital exhibits diminishing returns, it is most productive when it is relatively source No, because of diminishing return to capital, the additional growth from increasing capital declines as s country has more capital.