ECO100Y5 Study Guide - Midterm Guide: Physical Capital, Diminishing Returns, Human Capital

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17 Feb 2016
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Macroeconomics tutorial question solution
Chapter 9: Long run economic growth
Q#3
a) Ratio of per capita GPA
1. Middle income to high income
= (3980/38293)×100 = 10.4%
2. Low to high
= (507/38293)×100=1.3%
3. Low to middle
=(507/3980)×100=12.7%
b) Using Rule of 70
(it’s the time for which countries double the GDP)
70/growth rate = how many years the GDP doubles in 70 years
Middle income→70/4.8 = 14.6 years
Low income → 70/3 = 23.3 years
c) In 2088
1. With a real GDP per capita growth of 0.9% it will take high income
countries 70/0.9 = 78 years to double its GDP
2. During same period (2088), middle income countries are projected to
double their per capita GDP 78/14.6 = 5 times
=3980×25=$127360
3. For low income countries, 78/23.3=3 times
=507×23=$4056
d) Ratios (2088)
1. Middle to high (127360/76586)×100=166.3%
2. Low to high (4056/76586)×100=5.3%
3. Low to middle (4056/127360)×100=32%
Part a with part d
Both low and middle income countries improve more GDP than high income
countries
Middle income countries living standard outpaced high income countries
More inequality between middle and low
Q#4
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