Chapter 18: Q. 18.2LO (page 397)
Understand why the existence of dead capital retards economic growth?
By increasingthe number ofworking class increase will help in producing more output.
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Consider the estimates that the World Bank has assembled for the following nations:
Rank the nations in order, starting with the one you would expect to have the highest rate of economic growth, other things being equal. Explain your reasoning.
Last year, million in outstanding bank loans to a developing nation's government were not renewed, and the developing nation's government paid off million in maturing government bonds that had been held by foreign residents. During that year, however, a new group of banks participated in a million loan to help finance a major government construction project in the capital city. Domestic firms also issued million in bonds and million in stocks to foreign investors. All of the stocks issued gave the foreign investors more than percent shares of the domestic firms.
a. What was gross foreign investment in this nation last year?
b. What was net foreign investment in this nation last year?
In terms of the basic arithmetic of economic growth, through what mechanism do improvements in labor and capital productivity help to boost the rate of growth of per capita real GDP?
Assume that each billion in net capital investment generates percentage point of the average percentage rate of growth of per capita real GDP, given the nation's labor resources. Firms have been investing exactly billion in capital goods each year, so the annual average rate of growth of per capita real GDP has been percent. Now a government that fails to consistently adhere to the rule of law has come to power, and firms must pay million in bribes to gain official approval for every billion in investment in capital goods. In response, companies cut back their total investment spending to billion per year. If other things are equal and companies maintain this rate of investment, what will be the nation's new average annual rate of growth of per capita real GDP?
Suppose that every billion of dead capital reduces the average rate of growth in worldwide per capita real GDP by percentage point. If there is trillion in dead capital in the world, by how many percentage points does the existence of dead capital reduce average worldwide growth of per capita real GDP?
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