Question

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 _____.

Answer 1

Answer:

A) The same in both countries; the same in both countries

Explanation:

First, Solow growth model states that a steady-state level of output per worker will be the same in both countries this is simply because when there is higher growth rate in demography that is population, the steady-state level of capital per worker will be reduced which leads to a lower level of steady-state income. Furthermore,  the particular countries have the same production function that is the leonitief model (input equals output), same saving rate, same rate for machine wear and tear, and the same rate for change in demographic composition and all this will give us a Steady-State Level of Capital.

Second, The steady-state growth rate of output per worker will be the same in countries A and country B reason being  that the level of capital per worker will not change in the short run, that is, it will remain constant in both country A and B because of the similar factors they share in common.

Answer 2

Answer:

A) the same in both countries; the same in both countries

Explanation:

1.The steady-state level of output per worker will be the same in both countries because if their is higher growth rate of the population , the steady-state level of capital per worker will be lower which lead to lower level of steady-state income because the two countries have the same production function, same saving rate, same depreciation rate, and same rate of population growth which thereby means we have get to the Steady-State Level of Capital.

2. The steady-state growth rate of output per worker will be the same in both countries because the level of capita per worker will remain constant and does not change for both the countries because they share similar things in common.