Two countries, Highland and Lowland, are described by the Solow growth model. Both countries are identical, except that the rate of labor-augmenting technological progress is higher in Highland than in Lowland.

a. In which country is the steady-state growth rate of output per effective worker higher?
b. In which country is the steady-state growth rate of total output higher?
c. Does the Solow growth model predict that the two economies will converge to the same steady state?

Question

Two countries, Highland and Lowland, are described by the Solow growth model. Both countries are identical, except that the rate of labor-augmenting technological progress is higher in Highland than in Lowland.

a. In which country is the steady-state growth rate of output per effective worker higher?
b. In which country is the steady-state growth rate of total output higher?
c. Does the Solow growth model predict that the two economies will converge to the same steady state?

Quizplus · Accepted Answer

The Answer of Two countries, Highland and Lowland, are described by the Solow growth model. Both countries are identical, except that the rate of labor-augmenting technological progress is higher in Highland than in Lowland.

a. In which country is the steady-state growth rate of output per effective worker higher?
b. In which country is the steady-state growth rate of total output higher?
c. Does the Solow growth model predict that the two economies will converge to the same steady state?

Two Countries, Highland and Lowland, Are Described by the Solow