(Answered) Consider the following version of the neoclassical solow

Management Studies

Consider the following version of the neoclassical (Solow) growth model. Suppose the relationship between output per worker, y, and capital per worker, k, at any point in time is represented by

y = Af(k);

where the function f() is increase in k and concave. Suppose also that there is no techno- logical change, population growth is n, the savings rate is s and the rate of depreciation of capital is d.

(a) Suppose there are two such economies (A and B), that are identical in all respects except that A has a higher savings rate than B: sA > sB . Explain using a diagram what this implies for the relative steadyñstate levels of capital and output per worker in each country.

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