(Answered) Consider the following version of the neoclassical solow

Management Studies

Consider the following version of the neoclassical (Solow) growth model. Suppose the rela- tionship 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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