Refer to the following figure when answering the following questions. Figure 5.7: Solow Diagram -Consider Figure 5.7. If K_SK is the current capital stock in South Korea and K_CH is the current capital stock in China, according to the principle of transition dynamics: A) South Korea will be richer than China, forever. B) South Korea will initially grow slower, but incomes in China and South Korea will converge. C) China and South Korea have different steady states. D) South Korea will initially grow faster, but incomes in China and South Korea will converge. E) China will initially grow slower, but incomes in China and South Korea will converge.

Question

Quizplus · Accepted Answer

Transition dynamics suggest that countries further from their steady state grow faster as they "catch up." Since South Korea is implied to have a higher current capital stock than China, it will initially grow slower. However, if both countries have the same steady state, their incomes will eventually converge.

Refer to the Following Figure When Answering the Following Questions