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Chapter 18: Q. 18.2LO (page 397)

Understand why the existence of dead capital retards economic growth?

Short Answer

Expert verified

By increasingthe number ofworking class increase will help in producing more output.

Step by step solution

01

Introduction

Dead capital in terms for use in business to represent ownership which is kept orally, is not legally protected, and can also be swapped for payment. Ownership instability affects the asset class value and/or the capability to lend or borrow against this. Dead costs refer to all these lost types of payment. These assets in the shadow economy will become the key to developing development unless they were identified and incorporated into the big mainstream economy.

02

Explanation


It has been argued by some that incrementleads to the increase aborning force which isa crucial productive resource. By increasingthe amount oflabor pool increase will help in producing more output. As someone has remarked, increase brings in additional handsto work for productionthen contributes toprocess.

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Most popular questions from this chapter

The annual rate of growth of real GDP in a developing nation is 0.3percent. Initially, the country's population was stable from year to year. Recently, however, a significant increase in the nation's birthrate has raised the annual rate of population growth to 0.5percent.

a. What was the rate of growth of per capita real GDP before the increase in population growth?

b. If the rate of growth of real GDP remains unchanged, what is the new rate of growth of per capita real GDP following the increase in the birthrate?

Explain why population growth can have uncertain effects on economic growth.

Consider Table 18-1. Based on the basic arithmetic of economic growth, what were the average annual rates of real GDP growth since 1990 for those nations experiencing positive rates of annual growth of per capita real GDP?

Assume that each 1billion in net capital investment generates 0.3percentage point of the average percentage rate of growth of per capita real GDP, given the nation's labor resources. Firms have been investing exactly 6billion in capital goods each year, so the annual average rate of growth of per capita real GDP has been 1.8percent. Now a government that fails to consistently adhere to the rule of law has come to power, and firms must pay 100million in bribes to gain official approval for every 1 billion in investment in capital goods. In response, companies cut back their total investment spending to 4 billion per year. If other things are equal and companies maintain this rate of investment, what will be the nation's new average annual rate of growth of per capita real GDP?

For each of the following situations, explain which of the policy issues discussed in this chapter relates to the stance the institution has taken.

a. The World Bank offers to make a loan to a company in an impoverished nation at a lower interest rate than the company had been about to agree to pay to borrow the same amount from a group of private banks.

b. The World Bank makes a loan to a company in a developing nation that has not yet received formal approval to operate there, even though the government approval process typically takes 15months.

c. The IMF extends a loan to a developing nation's government, with no preconditions, to enable the government to make already overdue payments on a loan it had previously received from the World Bank.
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