In the Solow growth model, if two countries are otherwise identical (with the same production function, same saving rate, same depreciation rate, and same rate of population growth) except that Country Large has a population of 1 billion workers and Country Small has a population of 10 million workers, then the steady-state level of output per worker will be _____ and the steady-state growth rate of output per worker will be _____.

Question

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According to the Solow growth model, the steady-state level of output per worker is determined by the production function, saving rate, depreciation rate, and population growth rate. Since the two countries are otherwise identical except for their population size, the production function, saving rate, and depreciation rate are the same in both countries. However, the population growth rate is also the same, which means that the capital stock per worker will be lower in Country Large than in Country Small. As a result, Country Large will have a lower steady-state level of output per worker compared to Country Small. However, since the two countries have the same production function and saving rate, Country Large will also have a higher steady-state growth rate of output per worker because it has a larger population and therefore more potential for technological progress and innovation.

In the Solow Growth Model, If Two Countries Are Otherwise