Question

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 2019 and 2039.

Year	Hermes
	Physical Capital	Labor Force	Output	Productivity
	(Tools per worker)	(Workers)	(Gaggles of gop)	(Gaggles per worker)
2019	11	30	1,800
2039	16	30	2,160

Year	Gribinez
	Physical Capital	Labor Force	Output	Productivity
	(Tools per worker)	(Workers)	(Gaggles of gop)	(Gaggles per worker)
2019	8	30	900
2039	13	30	1,620

Initially, the number of tools per worker was higher in Hermes than in Gribinez. From 2019 to 2039, 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.

Answer 1

	Hermes
	Physical Capital	Labor Force	Output	Productivity
Year	(Tools per worker)	(Workers)	(Gaggles of gop)	(Gaggles per worker)
2019	11	30	1,800	60
2039	16	30	2,160	72

	Gribinez
	Physical Capital	Labor Force	Output	Productivity
Year	(Tools per worker)	(Workers)	(Gaggles of gop)	(Gaggles per worker)
2019	8	30	900	30
2039	13	30	1,620	54

From 2019 to 2039, 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 catchup effect.

Hermes had higher physical capital per worker than Gribinez, with the addition of more capital to Gribinez helps to catch up with Hermes in terms of output, income with more capital per person, this is called catch up efffect.