The economies of two countries, Thrifty and Profligate, have the same production functions and depreciation rates. There is no population growth or technological progress in either country. The economies of each country can be described by the Solow growth model. The saving rate in Thrifty is 0.3. The saving rate in Profligate is 0.05.

a. In which country is the level of steady-state output per worker larger? Explain.
b. In which country is the steady-state growth rate of output per worker larger?
c. In which country is the growth rate of steady-state total output greater?

Question

The economies of two countries, Thrifty and Profligate, have the same production functions and depreciation rates. There is no population growth or technological progress in either country. The economies of each country can be described by the Solow growth model. The saving rate in Thrifty is 0.3. The saving rate in Profligate is 0.05.

a. In which country is the level of steady-state output per worker larger? Explain.
b. In which country is the steady-state growth rate of output per worker larger?
c. In which country is the growth rate of steady-state total output greater?

Quizplus · Accepted Answer

The Answer of The economies of two countries, Thrifty and Profligate, have the same production functions and depreciation rates. There is no population growth or technological progress in either country. The economies of each country can be described by the Solow growth model. The saving rate in Thrifty is 0.3. The saving rate in Profligate is 0.05.

a. In which country is the level of steady-state output per worker larger? Explain.
b. In which country is the steady-state growth rate of output per worker larger?
c. In which country is the growth rate of steady-state total output greater?

The Economies of Two Countries, Thrifty and Profligate, Have the Same