Country A has a capital-labour ratio that is initially twice as big as that of country B, but neither is yet in a steady state. Both countries have the same production function, f(k) = 6 k^1/2. Country A has a 10% saving rate, 10% population growth rate, and 5% depreciation rate, while country B has a 20% saving rate, 10% population growth rate, and 20% depreciation rate.
a. Calculate the steady-state capital- labour ratio for each country. Does the initial capital-labour ratio affect your results?
b. Calculate output per worker and consumption per worker for each country. Which country has the highest output per worker? The highest consumption per worker?
c. In general, do all the fundamental characteristics of different countries need to be identical for convergence of output per worker?

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The Answer of Country A has a capital-labour ratio that is initially twice as big as that of country B, but neither is yet in a steady state. Both countries have the same production function, f(k) = 6 k^1/2. Country A has a 10% saving rate, 10% population growth rate, and 5% depreciation rate, while country B has a 20% saving rate, 10% population growth rate, and 20% depreciation rate. a. Calculate the steady-state capital- labour ratio for each country. Does the initial capital-labour ratio affect your results? b. Calculate output per worker and consumption per worker for each country. Which country has the highest output per worker? The highest consumption per worker? c. In general, do all the fundamental characteristics of different countries need to be identical for convergence of output per worker?

Country a Has a Capital-Labour Ratio That Is Initially Twice