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homework_7_solutions - effective uses Government...

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ECON 51 – HW#7 SOLUTIONS 1. Convergence hypothesis says that over time poor countries will grow faster and rich countries slower so that rates of GDP growth will converge. 2. a) LDC: country with very low per capital GDP, less than $1000/year and heavy emphasis on agriculture b) - Increase education and health → increase HC - Capital account liberalization → increase savings - Trade liberalization → increase importation of capital and technology - Educating women → decrease population growth and increase productivity - Financial sector reform and deepening → increase allocation of capital to more
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Unformatted text preview: effective uses- Government institutional reform → improves production function- Improve infrastructure → increase productivity of capital and labor c) Because saving is the source of funching for investment and investment is the source of capital accumulation d) To sustain growth- innovate → increase efficiency of capital- increase productivity - increase population e) ↑ G → good spending ↑ M and I ↑ e but ↓ saving ↓ G → ↑ saving ↑ capital accumulation...
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