Initially, the number of tools per worker was higher in Hermes than in Gobbledigook. From 2012 to 2062, capital per worker rises
by 5 units in each country. The 5-unit change in capital per worker causes productivity in Hermes to rise by asmaller amount than productivity in Gobbledigook. This illustrates the ___________ effect.
2 answers:
Options:
Human capital, Natural resources, technology, catch-up
Answer:
Catch-up effect
Explanation:
In 2012, Hermes had 30 workers and 11 tools per worker, total output was 1,800. Output per worker = 60
In 2062, Hermes also had 30 workers but it has 16 tools per worker, total output was 2,160. Output per worker = 72
In 2012, Gobbledigook had 30 workers and 8 tools per worker, total output was 900. Output per worker = 30
In 2062, Gobbledigook also had 30 workers and 13 tools per worker, total output was 1,620. Output per worker = 54
The workers in Hermes increased their productivity by 20% using 5 more tools, while the workers in Gobbledigook increased their productivity by 80% using 5 more tools.
The catch-up effect states that poorer economies tend to grow more rapidly than wealthier economies, e.g. China consistently grows at around 7% a year, while the US growth rate is between 2-3%. In absolute terms, the US economy is still larger with a much higher GDP per capita, but in the future both economies will have the same GDP per capita.
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Answer: 1.89%
Explanation:
You can use Excel to find the IRR here:
Investment amount should be first as shown and should be in negative.
The cash flows will then follow each other by year.
Use the =IRR formula to select all the cells and the IRR will show.'
IRR here = 1.89%
