The following table reports real income per person for several different economies in the years 1960 and 2010. It also gives each economy’s average annual growth rate during this period. For example, real income per person in the Central African Republic was $1,010 in 1960, and it actually declined to $628 by 2010. The Central African Republic’s average annual growth rate during this period was -0.95%, and it was the poorest economy in the table in the year 2010.
The real income-per-person figures are denominated in U.S. dollars with a base year of 2005. The following exercises will help you to understand the different growth experiences of these economies.
Economy
Real Income per Person in 1960
Real Income per Person in 2010
Annual Growth Rate
(Dollars)
(Dollars)
(Percent)
Australia 13,817 37,338 2.01 Finland 8,837 31,601 2.58 Thailand 772 8,467 4.91 Ireland 7,807 41,558 3.40 Pakistan 717 2,477 2.51 Central African Republic 1,010 628 -0.95
Indicate which economy satisfies each of the following statements.
Statement
Australia
Central African Republic
Finland
Ireland
Pakistan
Thailand
This economy experienced the fastest rate of growth in real income per person from 1960 to 2010. This economy had the highest level of real income per person in the year 2010.
Consider the following list of four economies. Which economy began with a level of real income per person in 1960 that was below that of Finland and grew fast enough to catch up with and surpass Finland’s real income per person by 2010?
Australia
Central African Republic
Ireland
Thailand
Consider a simple economy whose only industry is fishing. In this industry, productivitythe amount of goods and services a worker can produce per houris measured by the number of fish one fisherman catches per hour.
In the following table, match each example to the productivity determinant it represents.
Examples
Human Capital per Worker
Natural Resources per Worker
Physical Capital per Worker
Technological Knowledge
The boats in the fishing fleet The fertile waters in which the fish feed and breed The skills workers develop through training before working on and piloting boats An advanced mapping system that determines the likelihood of finding fish schools in different depths and locations
3. The catch-up effect
Consider the economies of Hermes and Tralfamadore, both of which produce gaggles of gop 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 2018 and 2048.
Year
Hermes
Physical Capital
Labor Force
Output
Productivity
(Tools per worker)
(Workers)
(Gaggles of gop)
(Gaggles per worker)
2018 7 30 3,000 2048 11 30 3,600
Year
Tralfamadore
Physical Capital
Labor Force
Output
Productivity
(Tools per worker)
(Workers)
(Gaggles of gop)
(Gaggles per worker)
2018 4 30 2,400 2048 8 30 3,600
Initially, the number of tools per worker was higher in Hermes than in Tralfamadore. From 2018 to 2048, capital per worker rises by 4 units in each country. The 4-unit change in capital per worker causes productivity in Hermes to rise by a amount than productivity in Tralfamadore. This illustrates the effect.
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