Which of the following is not a factor in why we would expect convergence to occur?A. High marginal product of capital in poor countriesB. Technology transferC. High marginal product of capital in rich countriesD. The ability of poor countries to attract more capital

Answered: High marginal product of capital in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Which of the following is not a factor in why we would expect convergence to occur?
A. High marginal product of capital in poor countries
B. Technology transfer
C. High marginal product of capital in rich countries
D. The ability of poor countries to attract more capital

Expert Solution

Step 1

The concept of convergence is also known as catch up effect. Where poor country per capita income will grow faster rate than the per capita income of richer country.

It is given by solow swan model. Where economic growth is driven by accumulation of physical capital.

The model predicts more rapid economic growth when per capita when per capita physical capital is low.

As a result all economies will converge in terms of per capita income. Poor countries are more potential to grow faster rate because diminishing returns of physical capital is low compared to rich countries.

Poor countries can replicate the technology, production methods,

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