STUDY

Answer all of the following five (5) questions.

Dr David Smith and Dr Carol Jefferson are economic research fellows. Both belong to the Solow school of thought meaning that they agreed on the importance of capital accumulation in achieving the steady-state economic growth rate. However, like other economists they have distinctive views: Dr Smith thinks that all countries will converge in the long run, while Dr Jefferson argues that countries will never converge and the economic development across countries will persist forever.

Question 1

What are the potential reasons behind Dr Smith's argument that all countries will converge in the long run in terms of their economic performance? Explain.

Question 2

What are the potential reasons behind Dr Jefferson's argument that countries will never converge in the long run and the income disparity across countries will remain forever? Explain.

(8 marks)

Dr Smith stated in the media that a country is unlikely to grow forever in terms of its economic development. Do you agree with Dr Smith? Provide reasons in favour of your argument.

(8 marks)

Question 4

Dr Jefferson recommended that a country should devote more time to human capital accumulation to increase the economy's growth rate. If a country follows Dr Jefferson's argument and invests more time to human capital accumulation, what will happen in terms of the economy's current and future levels of consumption? Discuss.

(8 marks)

Question 5

Dr Jefferson argued in the media that technological improvement is indispensable to increase total factor productivity. Do you support Dr Jefferson? If so, what steps would you recommend a country to take to boost technological progress? Discuss.