Explain the economic concept of convergence
What will be an ideal response?
Convergence is the process by which poorer countries close the gap between their level of GDP per capita and the GDP per capita of richer countries. To converge, poorer countries must grow at a faster rate than richer countries.
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The principal-agent problem arises in labor markets because:
A. a firm may realize excessively large profits. B. workers may provide less-than-expected work effort. C. compensating wage differences do not pay for differences in the nonmonetary aspects of jobs. D. human capital investments vary among workers.
Suppose that nominal GDP in year 1 is 200 and nominal GDP in year 2 is 242. Assume that inflation is ten percent per year. How fast did the economy grow between these two years?
A) 10 percent B) 12 percent C) 21 percent D) 42 percent