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4. The catch-up effect Consider the economies of Hermes and Gribinez, both of which produce gaggles...

4. The catch-up effect

Consider the economies of Hermes and Gribinez, both of which produce gaggles of gop using only tools and workers. Suppose that, during the course of 20 years, the level of physical capital per worker rises by 5 tools per worker in each economy, but the size of each labor force remains the same.

Complete the following tables by entering productivity (in terms of output per worker) for each economy in 2020 and 2040.

Year

Hermes
Physical Capital Labor Force Output Productivity
(Tools per worker) (Workers) (Gaggles of gop) (Gaggles per worker)
2020 7 30 1,800
2040 12 30 2,160
Year

Gribinez
Physical Capital Labor Force Output Productivity
(Tools per worker) (Workers) (Gaggles of gop) (Gaggles per worker)
2020 4 30 900
2040 9 30 1,620

Initially, the number of tools per worker was higher in Hermes than in Gribinez. From 2020 to 2040, capital per worker rises by 5 units in each country. The 5-unit change in capital per worker causes productivity in Hermes to rise by a amount than productivity in Gribinez. This illustrates the effect.

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Answer #1
Year

Hermes
Physical Capital Labor Force Output Productivity
(Tools per worker) (Workers) (Gaggles of gop) (Gaggles per worker)
2020 7 30 1,800 60
2040 12 30 2,160 72
Year

Gribinez
Physical Capital Labor Force Output Productivity
(Tools per worker) (Workers) (Gaggles of gop) (Gaggles per worker)
2020 4 30 900 30
2040 9 30 1,620 54

Initially, the number of tools per worker was higher in Hermes than in Gribinez. From 2020 to 2040, capital per worker rises by 5 units in each country. The 5-unit change in capital per worker causes productivity in Hermes to rise by a smaller amount than productivity in Gribinez. This illustrates the catch-up effect.

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