Chapter 18: Q. 18.2LO (page 397)
Understand why the existence of dead capital retards economic growth?
Short Answer
By increasingthe number ofworking class increase will help in producing more output.
Chapter 18: Q. 18.2LO (page 397)
Understand why the existence of dead capital retards economic growth?
By increasingthe number ofworking class increase will help in producing more output.
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Get started for freeDiscuss the sources of international investment funds for developing nations.
Why do you suppose that many observers regard India's agricultural productivity issues related to land use as analogous to the problems arising from dead capital?
Identify which of the following situations currently faced by the World Bank or the International Monetary Fund are examples of adverse selection and which are examples of moral hazard.
a. The World Bank has extended loans to the government of a developing country to finance construction of a canal with a certain future flow of earnings. Now, however, the government has decided to redirect those funds to build a casino that may or may not generate sufficient profits to allow the government to repay the loan.
b. The IMF is considering extending loans to several nations that failed to fully repay loans they received from the IMF during the past decade but now claim to be better credit risks. Now the IMF is not sure in advance which of these nations are unlikely to fully repay new loans.
c. The IMF recently extended a loan to a government directed by democratically elected officials that would permit the nation to adjust to an abrupt reduction in private flows of funds from abroad. A coup has just occurred, however, in response to newly discovered corruption within the government's elected leadership. The new military dictator has announced tentative plans to disburse some of the funds in equal shares to all citizens.
For each of the following situations, explain which of the policy issues discussed in this chapter relates to the stance the institution has taken.
a. The World Bank offers to make a loan to a company in an impoverished nation at a lower interest rate than the company had been about to agree to pay to borrow the same amount from a group of private banks.
b. The World Bank makes a loan to a company in a developing nation that has not yet received formal approval to operate there, even though the government approval process typically takes months.
c. The IMF extends a loan to a developing nation's government, with no preconditions, to enable the government to make already overdue payments on a loan it had previously received from the World Bank.
Some international policymakers argue that the world's poor require stronger "nudges, "such as policies that prevent them grow making "bad" choices. How might stronger nudges limit economic freedom and potentially slow economic growth? (What Does reducing the range of people's choices expand or limit their economic freedom??
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