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Countries X and Y differ in population growth rates and rates of investment.
Country X: investment (or savings) is 20% of GDP, population grows at 0% per year
Country Y: investment (savings) is 5% of GDP, population grows at 4% per year.

Both countries have the same rate of depreciation (5%). Use the Solow model to calculate the ratio of their steady state levels of income per capita, assuming ? =1/3.

a) Verbally, interpret your answer.

b) How would your result change if ? =1/2?

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M9747745

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