Babylonia and Yuan had the same GDP of 20 billion dollars in 1950. Babylonia grew at 7% each year while Yuan grew at 5% each year. Both had the same initial value of physical and human capital and shared the same production function of Y=A*K^0.5*L^0.5 (both K and L have a degree of 0.5 or 1/2). a. After 70 years of the same growth rate of GDP, what was the GDP of each country? Calculate them using Rule of 70. Based on Yuan’s economic size, how many percent larger is Babylonia’s economy than Bahriya’s after 70 years (i.e, in 2020) b. If both countries had the same amount of labour and capital growth throughout the 70 years in Part a, what can explain the difference in GDP in 2020? Pick an example according to the production function and explain your logic. c. Can we call Babylonia a developed nation if their GDP per capita is highest in the world due to its incredible growth in the last 70 years? Briefly explain your answer.
Babylonia and Yuan had the same
a. After 70 years of the same growth rate of GDP, what was the GDP of each country? Calculate them using Rule of 70. Based on Yuan’s economic size, how many percent larger is Babylonia’s economy than Bahriya’s after 70 years (i.e, in 2020)
b. If both countries had the same amount of labour and capital growth throughout the 70 years in Part a, what can explain the difference in GDP in 2020? Pick an example according to the production function and explain your logic.
c. Can we call Babylonia a developed nation if their GDP per capita is highest in the world due to its incredible growth in the last 70 years? Briefly explain your answer.
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