Question

42) The Solow Model: GDP = F(A, K, eL) gives countries hope they can 'catch-up', this is called:

a) Seigniorage

b) Real GDP

c) China Effect

d) Conditional Convergence

42a) K refers to the capital investment/depth. In general the greater the capital the GDP is:

a) None of the other answers

b) K does not affect GDP

c) Larger

d) Smaller

42b) K has Limited effect because of:

a) K does not wear out

b) None of the other answers

c) Economic Depreciation

d) K has no effect on GDP

Answer 1

42.

The catching up effect is also called conditional convergence. It gives the idea that countries which are poorer will grow much faster than the richer countries and ultimately the growth rates of all the countries will converge.

Hence, option d is the right answer.

42a

Usually larger the capital, the GDP is larger as well. Increased capital means that the economy can produce more output with the available machinery.

Hence option c is the answer.

42b

Capital has a limited effect as capital depreciate over time. There's wear and tear of capital which must be taken into account. As time passes, this becomes more and more pronounced.

Hence option c is the answer.