Assume that two economies are identical in every way except that one has a higher saving rate. According to the Solow growth model, in the steady state the country with the higher saving rate will have _____ level of output per person and _____ rate of growth of output per worker compared to the country with the lower saving rate.

Question

Quizplus · Accepted Answer

In the Solow growth model, a higher saving rate leads to a higher steady-state level of capital per worker, resulting in a higher level of output per person. However, the long-term growth rate of output per worker is determined by the rate of technological progress, which is the same for both countries, so the growth rate remains the same.

Assume That Two Economies Are Identical in Every Way Except