problem set 3

problem set 3 - In which economy A or B are haircuts likely...

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Economics 205: Principles of Macroeconomics Mark Moore Spring 2010 Problem Set 3 1. Baumol and Blinder, p. 151, Discussion Question 2. 2. Consider two economies that are initially identical. Twenty years later, they are much different. One economy – call it A – has had a technological revolution. Economy A has experienced a substantial increase in the growth rate of labor productivity, driven by technological change in leading-edge industries. In the other economy – call it B – there has been no such increase in labor productivity. Other things equal, does an increase in labor productivity tend to enable countries to produce goods more cheaply?
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Unformatted text preview: In which economy, A or B, are haircuts likely to be more expensive? Explain. 3. Consider two middle-income countries, both of which are growing at a very fast rate. In one country, Machineland, growth has been accomplished by a high rate of investment and capital accumulation. In the other country, Idealand, growth has been accomplished by a high rate of technological progress. In which country do you think prospects for continued growth are higher? Can Machineland count on continued high growth from new capital? Can Idealand expect continued high rates of technological progress? Explain....
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