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Chapter 18: Q. 18.2LO (page 397)

Understand why the existence of dead capital retards economic growth?

Short Answer

Expert verified

By increasingthe number ofworking class increase will help in producing more output.

Step by step solution

01

Introduction

Dead capital in terms for use in business to represent ownership which is kept orally, is not legally protected, and can also be swapped for payment. Ownership instability affects the asset class value and/or the capability to lend or borrow against this. Dead costs refer to all these lost types of payment. These assets in the shadow economy will become the key to developing development unless they were identified and incorporated into the big mainstream economy.

02

Explanation


It has been argued by some that incrementleads to the increase aborning force which isa crucial productive resource. By increasingthe amount oflabor pool increase will help in producing more output. As someone has remarked, increase brings in additional handsto work for productionthen contributes toprocess.

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Most popular questions from this chapter

The annual rate of growth of real GDP in a developing nation is 0.3percent. Initially, the country's population was stable from year to year. Recently, however, a significant increase in the nation's birthrate has raised the annual rate of population growth to 0.5percent.

a. What was the rate of growth of per capita real GDP before the increase in population growth?

b. If the rate of growth of real GDP remains unchanged, what is the new rate of growth of per capita real GDP following the increase in the birthrate?

How might Africa's productivity improvements help to explain the recent growth reversal between advanced nations and developing and emerging countries?

Identify which of the following situations currently faced by international investors are examples of adverse selection and which are examples of moral hazard.

aAmong the governments of several developing countries that are attempting to issue new bonds this year, it is certain that a few will fail to collect taxes to repay the bonds when they mature. It is difficult, however, for investors considering buying government bonds to predict which governments will experience this problem.

bForeign investors are contemplating purchasing stock in a company that, unknown to them, may have failed to properly establish legal ownership over a crucial capital resource.

c. Companies in a less developed nation have already issued bonds to finance the purchase of new capital goods. After receiving the funds from the bond issue, however, the company's managers pay themselves large bonuses instead.

dWhen the government of a developing nation received a bank loan three years ago, it ultimately repaid the loan but had to reschedule its payments after officials misused the funds for unworthy projects. Now the government, which still has many of the same officials, is trying to raise funds by issuing bonds to foreign investors, who must decide whether or not to purchase them.

Suppose that every 500 billion of dead capital reduces the average rate of growth in worldwide per capita real GDP by 0.1 percentage point. If there is 10 trillion in dead capital in the world, by how many percentage points does the existence of dead capital reduce average worldwide growth of per capita real GDP?

Suppose that a foreign resident is contemplating buying 5 per cent of the shares of a company based in a developing nation but is experiencing difficulty determining whether the firm is riskier than others in that country. What type of investment is this foreign resident considering, and what type of asymmetric information problem is he or she experiencing?
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