Author Question: In theory, differences in output across economies and over time might be the result of differences ... (Read 44 times)

CharlieWard · **on:** Jun 30, 2018

In theory, differences in output across economies and over time might be the result of differences in either capital input, labor input, or productivity.

The evidence points clearly to productivity as a more likely and powerful source of growth differences. Which aspects of the Solow growth model help to explain why the inputs of capital and labor contribute little to growth of output, relative to productivity?

Question 2

When World War II (194145) came,

(a) the labor force expanded by very little despite the high unemployment of 1941.
(b) unemployment was still high enough that the armed forces could be expanded and
war production expanded without a large increase in the labor force.
(c) a large increase in the labor force occurred in all categories, including men
over 65 and women.
(d) none of the above occurred.

Jody Vaughn · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Diminishing marginal product undermines the impact on output of increases in either capital or labor. As long as the labor input grows, and saving is sufficient to compensate for depreciation and capital dilution, output can grow at the same rate as the labor input. Faster growth is possible during recovery from an event that has reduced the capital-labor ratio, or in response to an increase in the saving rate. But such growth episodes end as the capital-labor ratio approaches a steady state. A growing stock of capital has a diminishing effect on output, on the one hand, and a linearly-increasing reliance on saving from output on the other. Productivity is subject neither to diminishing marginal returns nor to depreciation & dilution, so nothing impedes the connection from productivity growth to output growth.

Answer to Question 2

(c)