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Two countries, A and B, differ in population growth rates and rates of investment. Country A has an investment rate of 10% of GDP and a population growth rate of 1% per year, while country B has an investment rate of 20% of GDP and its population grows at 4% per year. Both countries have the same rate of depreciation of 5% and α = 1/3. Use the Solow model to find out the ratio of their steady state levels of income per capita. How can you describe the result?

Microeconomics, Economics

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