Country A has been growing at a rate of 7% per year,whereas country B has been growing at a rate of 2% 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

According to the Solow growth model, countries that are growing at a faster rate will eventually reach their steady state, which is the point where capital per worker and output per worker no longer change. Since Country B is growing at a slower rate, it is closer to its steady state than Country A, which means that it has reached a more stable level of output per worker. Country A, on the other hand, is still in the process of growing and is further away from its steady state. Therefore, choice C is the correct answer.

Country a Has Been Growing at a Rate of 7