Instructions to students: All questions are compulsory.

Dictionaries are not allowed.

TASK: EC3021 Development Economics Assignment

Question 1

The government of a poor developing country fears that a political upheaval will occur unless the GDP growth rate is at least 4 percent per annum. The capital-output ratio and the savings rate are projected to be 5.0 and 0.14, respectively.

a)Which model represents the process of growth using a fixed capital-output ratio? What does the capital-output ratio represent? Discuss the main assumption underlying the production function of this model. (10 marks)

b)Show that a 4 percent growth target cannot be achieved under these circumstances. (10 marks)

c)Taking the saving rate as given and a depreciation rate of 10 percent, what capital-output ratio would be required to achieve the 4 percent growth target? (5 marks)

Question 2

A fictitious society is composed of only 3 individuals.