University of Birmingham Dubai

LC The Global Economy

Seminar 1

Question 1

What is meant by PPP and why it is useful when comparing historical growth patterns across countries?

Question 2

a) What is meant by the Malthusian Trap?

b) How did the West manage to break out of the Malthusian Trap?

Question 3

Assume a production function of the following form:

𝑌 = 𝐴𝐾𝐿
Also assume that the level of technological progress is characterized by A=2 (constant), and the growth rates
of capital and population are 2% and 3% respectively. Also assume that there is no unemployment.
a) Calculate the growth rate of income (Y).
b) Calculate the growth rate of income per capita (Y/population).