Question #3 - Reading 6 Economic Growth

Reading: Reading 6 Economic Growth

PDF File: Reading 6 Economic Growth.pdf

Page: 3

Status: Unattempted

Shared Context

- Cragistan's potential GDP growth rate exceeds that of Kurtenstein's. Which difference in factors could help justify Cragistan's higher sustainable growth rate? A) The savings rate between the two countries. B) The established financial sector intermediation. C) The free trade and unrestricted capital flows.

Question

The evidence that supports the club convergence hypothesis includes, Cragistan's and West Lundia's:

Answer Choices:

A. savings rates, and population growth rates are stabilizing and becoming similar to Kurtenstein’s rates

B. institutions are becoming standardized according to regional monetary union guidelines

C. long-term growth rates are converging toward Kurtenstein’s long-term growth rates

Explanation

Under club convergence, countries can 'join' the club by making appropriate institutional changes. Both West Lundia's and Cragistan's adherence to regional monetary union standards show their willingness to join the developed nations' club. Emerging nations' long-term growth converging toward a developed country's long-term growth rates is part of the absolute convergence hypothesis. The conditional convergence hypothesis states that convergence in living standards will only occur for countries with the same savings rates, population growth rates, and production functions.

Actions

Practice Flashcards