What is the situation when a nation has a very low GDP per capita ?
Show answer Hide answer
Answer: D. it has the potential to grow relatively quickly due to the “catch-up-effect”
Explanation
Developing economies experience high marginal returns on new physical capital investments. Workers become significantly more productive when equipped with basic tools and infrastructure. This allows poorer nations to grow much faster than wealthy, saturated economies. The catch up effect is grounded in the neoclassical economic growth theory models. Diminishing returns mean wealthy nations add output more slowly with each new capital unit. Technology transfer allows developing countries to adopt advanced practices without inventing them.
Global economic convergence depends on developing nations growing faster than developed nations. Foreign direct investment targets developing regions seeking high returns on capital projects. International aid programs aim to jump start capital accumulation in impoverished nations. Poor nations are not doomed to poverty because economic catch up growth is well documented. None of these answers is incorrect because the catch up effect accurately applies here. Small nation size is not a prerequisite for experiencing rapid catch up economic growth.
Related questions
Q1. Where is the 'Nikkei Stock average' applied ?
Show answer Hide answer
Answer: B. Mainly to international equities
The Nikkei Stock Average is the premier stock market index for Japanese equities traded on the Tokyo Stock Exchange.
Q2. When the World Bank or IMF demands a short-term improvement in external balance, what expenditure-switching policy might they tie to their loan ?
Show answer Hide answer
Answer: B. devaluing local currencies
Devaluing local currencies alters relative prices to favor domestic goods over imports. This monetary policy action successfully switches consumer expenditure toward domestic products. Cheaper domestic exports and expens...
Q3. What is a declining or dropping stock market referred to as ?
Show answer Hide answer
Answer: B. Bearish
A bearish market reflects widespread pessimism and falling asset values over time. Investors expect further declines, which leads to sustained selling pressure in equities. This market condition stands in direct contrast...
Q4. Which American sector has experienced the least impact from import competition in recent years ?
Show answer Hide answer
Answer: D. Computer software
Computer software is intangible intellectual property that transcends physical shipping borders. Development costs are concentrated upfront while reproduction and distribution costs are near zero. Foreign manufacturing c...
Q5. What happens when the money supply expands ?
Show answer Hide answer
Answer: D. The LM curve shift to the right
Expanding the money supply increases real balances and shifts the LM curve. In the IS-LM framework, monetary expansion moves the equilibrium curve outward. Lower interest rates result from the rightward shift of the liqu...
Q6. What term describes a declining stock market_______________?
Show answer Hide answer
Answer: A. Bearish
A bearish market is characterized by widespread pessimism and falling equity valuations. Downward price momentum persists as investors sell holdings to avoid further losses. Market participants anticipate economic weakne...