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Econ 157
Homework II
1. The Harrod-Domar equation is: g=s/θ, where g is growth rate, s is the rate of
savings, and θ is the capital-output ratio. S= 20% Θ= 5
If the savings rate is 20% and the incremental capital output ratio is five, then
the implied growth rate g=20/5 = 4%.
2. Projects must be appraised so a value can be given to them. The value of the
project must be determined before any funding is given to ensure the project will
generate enough funds to repay the investment. From the project appraisal we can
learn the social impact and what revenue it is expected to generate.
3. The Washington Consensus was coined by a British economist named John
Williamson in 1989 and is economic policy recommendations for developing
countries. Some of the key points include fiscal discipline, tax reform, financial
liberalization, exchange rates, privatization and deregulation. The goal is to increase
the economic growth of these developing countries.
The Santiago Consensus was coined by the president of the World Bank at the
Santiago summit in 1998. The focus of this consensus is on more than economics.
This consensus works to establish infrastructure, education, better the environment
and, research & development in these developing countries.
4. Reducing corruption in developing countries provides a major economic benefit.
Corruption in these countries leads to most of the income and wealth to go to the
government and political figures, while the people of the country suffer from poverty.
When the people are in poverty they have no means...