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4. The catch-up effect Consider the economies of Sporon and Gobbledigook, both of which produce glops...

4. The catch-up effect

Consider the economies of Sporon and Gobbledigook, both of which produce glops of gloop using only tools and workers. Suppose that, during the course of 30 years, the level of physical capital per worker rises by 4 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 2019 and 2049.

Year

Sporon

Physical Capital

Labor Force

Output

Productivity

(Tools per worker)

(Workers)

(Glops of gloop)

(Glops per worker)
2019 7 30 3,000
2049 11 30 3,600

Year

Gobbledigook

Physical Capital

Labor Force

Output

Productivity

(Tools per worker)

(Workers)

(Glops of gloop)

(Glops per worker)
2019 4 30 2,400
2049 8 30 3,600

Initially, the number of tools per worker was higher in Sporon than in Gobbledigook. From 2019 to 2049, capital per worker rises by 4 units in each country. The 4-unit change in capital per worker causes productivity in Sporon to rise by a   amount than productivity in Gobbledigook. This illustrates the     effect.

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Answer #1

Year

Sporon

Physical Capital

Labor Force

Output

Productivity

(Tools per worker)

(Workers)

(Glops of gloop)

(Glops per worker)
2019 7 30 3,000 3000/30=100
2049 11 30 3,600 3600/30=120

Year

Gobbledigook

Physical Capital

Labor Force

Output

Productivity

(Tools per worker)

(Workers)

(Glops of gloop)

(Glops per worker)
2019 4 30 2,400 2400/30=80
2049 8 30 3,600 3600/30 = 120

From 2019 to 2049, capital per worker rises by 4 units in each country. The 4-unit change in capital per worker causes productivity in Sporon to rise by a smaller[(120-100=20)vs(120-80)=40] amount than productivity in Gobbledigook. This illustrates the catch-up effect.

Catch up effect = poorer countries have higher potential to grow faster than the richer ones

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