Scenario: Consider two countries: Country A and Country B. Both countries have the identical aggregate production functions, populations, and efficiency units of labor, but they have different saving rates. The saving rate is higher in Country A than in Country B.
-Refer to the scenario above.If both economies have identical depreciation rates,then Country A's steady-state equilibrium will ________ Country B's steady-state equilibrium.

Question

Quizplus · Accepted Answer

A higher saving rate leads to a higher capital stock since more resources are being invested in capital, which in turn leads to a higher level of output per worker, and a higher steady-state equilibrium level of output. Therefore, Country A's steady-state equilibrium will lie to the right and above Country B's steady-state equilibrium.

Scenario: Consider Two Countries: Country a and Country B