Author Question: Use the Cobb-Douglas production function to explain why even massive movements of labor and capital ... (Read 45 times)

kaid0807 · **on:** Jun 30, 2018

Use the Cobb-Douglas production function to explain why even massive movements of labor and capital across national borders may have little impact on differences in per capita income.

What will be an ideal response?

Question 2

When the borrowing constraint is binding, ________.

A) wealth is zero
B) current consumption is lower than future consumption
C) future consumption is lower than current consumption
D) consumption smoothing is not possible

brittrenee · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

Relatively low per capita income may be due to low total factor productivity or to low capital per worker. In the latter case, migration of capital or of labor could reduce inequality. In the former case, however, rising levels of capital in a low-income economy will do little to raise output per person. Declines in the labor input due to out-migration from a low-income economy might mean more capital for each of the remaining workers but, again, the increase in output per worker will be small if total factor productivity is low.

Answer to Question 2

D