Country A has been growing at a rate of 7 percent per year,whereas country B has been growing at a rate of 2 percent per year.The Solow growth model would predict that
A) country A is wealthier than country B.
B) both countries are in a steady state.
C) country B is closer to its steady state than country A.
D) country A is closer to its steady state than country B.
E) these two countries will never converge at the same level of wealth.

Question

Quizplus · Accepted Answer

The Solow growth model suggests that a country with a lower growth rate is likely closer to its steady state, as it implies diminishing returns to capital and slower growth as it approaches its steady state.

Country a Has Been Growing at a Rate of 7