Explain how an economy which is presently above its balanced growth path will converge back to its balanced growth path?
What will be an ideal response?
If an economy is presently above its balanced growth path, its capital-labor ratio is greater than the steady-state capital-labor ratio. In this case, growth from convergence will be negative, so the growth rate for the economy will be less than the balanced growth rate. The slower growth rate for the economy will eventually bring the economy back to its balanced growth path.
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In the 1970s, a period of a high rate of inflation, a news magazine article listed people who were losing from inflation because their real purchasing power was falling. Those who lost the most were university professors
Which of the following explains this? A) Their wage rates did not increase as much as the CPI. B) The marginal benefit of their work was falling. C) The professors' market basket was different than the market basket used to calculate the CPI. D) Their wage rates increased more rapidly than the CPI. E) The professors suffered from the CPI bias.
In-kind transfer programs such as Medicaid have increased more rapidly than other welfare programs over the last decade
a. True b. False