Real GDP per person is $50,000 in Andromeda, $40,000 in Cosmos, $30,000 in Circinus, and $10,000 in Myall. Saving per person is $4000 in all four countries. Other things equal, what would we expect?

Question

Quizplus · Accepted Answer

According to the Solow growth model, countries with lower levels of capital accumulation (which is represented by GDP per person) will experience higher growth rates. Therefore, Myall, with the lowest level of GDP per person, will experience the highest growth rate. The saving rate being the same across all countries does not affect this conclusion, as it only determines the steady-state level of income, not the growth rate.

Real GDP Per Person Is $50,000 in Andromeda, $40,000 in Cosmos