13. Suppose the production function for aggregate output in the United States is the same as in...
Question:
13. Suppose the production function for aggregate output in the United States is the same as in India, Y = AKaL1-a, where A is a total productivity factor, K is the capital stock, and L is the supply of labor. From Table 22-2, calculate the ratio of per capita incomes Y/L in India and the United States in 2010. Use this information to figure out the ratio of capital’s marginal product in India and the United States.
(The marginal product of capital is given by aAKa-1L1-a.) Relate the answer to the Lucas puzzle of capital flows from rich to poor. How much would A have to differ between India and the United States to make the marginal product of capital the same in the two countries?
Step by Step Answer:
International Finance Theory And Policy
ISBN: 9781292238739
11th Global Edition
Authors: Paul R. Krugman, Maurice Obstfeld, Marc Melitz