Question

The catch-up effect refers to the idea thata. saving will always catch-up with investment spending.b. it is easier for a country to grow fast and so catch-up if it starts out relatively poor.c. population eventually catches-up with increased output.d. if investment spending is low, increased saving will help investment to "catch-up."

Answer 1

b. it is easier for a country to grow fast and so catch-up if it starts out relatively poor.

This is because a poor economy has more room to grow. Say the poor country's GDP is 1 million and the rich country's GDP is 100 million If they each made investments that grew their economies by $5 million dollars, that would be a huge increase for the poorer country and barely 5% of the richer country. Developing economies can catch up faster because each little investment makes such a big impact.