1. Assume the theory of absolute convergence is literally true. The current GDP per capita of Iran is $5000 and the current GDP per capita of Switzerland is $30000. What will happen to the difference between these two countries in the "long run"? 2. What has to be true of the capital account between two countries if the current account is negative? 3. Assume you are thinking about buying a three year bond with a face of $1000 and coupon rate of 5% (paid every year including at maturity, so you receive three coupon payments). What is your valuation of this asset if your discount rate is 10%? 5%?
1. Assume the theory of absolute convergence is literally true. The current GDP per capita of Iran is $5000 and the current GDP per capita of Switzerland is $30000. What will happen to the difference between these two countries in the "long run"? 2. What has to be true of the capital account between two countries if the current account is negative? 3. Assume you are thinking about buying a three year bond with a face of $1000 and coupon rate of 5% (paid every year including at maturity, so you receive three coupon payments). What is your valuation of this asset if your discount rate is 10%? 5%?
Chapter7: Economic Growth: Theory And Policy
Section: Chapter Questions
Problem 3DQ
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1. Assume the theory of absolute convergence is literally true. The current GDP per capita of Iran is $5000 and the current GDP per capita of Switzerland is $30000. What will happen to the difference between these two countries in the "long run"?
2. What has to be true of the capital account between two countries if the current account is negative?
3. Assume you are thinking about buying a three year bond with a face of $1000 and coupon rate of 5% (paid every year including at maturity, so you receive three coupon payments). What is your valuation of this asset if your discount rate is 10%? 5%?
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