From Schweser 2 PM “Lanning then turns his attention to the countries of Alicia and Felicia. He notes that the GDP growth rate in both countries is comparable. Alicia’s capital to labor ratio is USD 5,000 and the output to capital ratio is USD 12,000. Felicia’s capital to labor ratio is USD 2,800 while output to capital ratio is USD 10,000. Alicia has a relatively younger labor force and the labor cost represents 35% of total factor cost. Both countries have extensive restrictions on foreign direct investments in their economy.”
For me it is the first time I see any of the ratios given here acually filled with life (e.g. numbers). So what exactly should a output to capital ratio of USD 12,000 be?
First of all both numbers in the fraction are USD in my understanding so that the ratio should not have any unit (e.g. given in USD)? What am I missing here?
Can I interpret this ratio that for every 1$ invested in capital the GDP is 12000 * Capital? This seems to be quite a big number?
Thanks!