Calculate the ratio of steady-state levels income per capita

Reference no: EM13185774

Suppose that there are two countries, X and Y, that differ in both their rates of investment and their population growth rates. In country X, investment is 20% of GDP, and the population grows at 0% per year. In country Y, investment is 5% of GDP, and the population grows at 4% per year. The two countries have the same levels of productivity, A. In both countries, the rate of depreciation, ? , is 5%. Use the Solow model to calculate the ratio of their steady-state levels income per capita, assuming that the economy follows a Cobb Douglas production function and that ?= 1/3.

Reference no: EM13185774

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