Illustrate what are the levels of income per worker

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Reference no: EM1347288

Country A and Country B both have the production function.

A ) What is the per worker production function?

B) Assume that neither country experiences population growth or technological progress and that 5 percent of capital depreciates every year. Further assume that country A saves 10 percent of output each year and country B saves 20 percent of output each year. Using your answer in part a along with the steady state condition, find the steady state level of capital per worker for each country. Then find steady state levels of income per worker and consumption per worker.

C) Suppose both countries start off with a capital stock per worker of 2. Illustrate what are the levels of income per worker also consumption per worker? Show how capital stock per worker will evolve over time in both countries. For each year calculate income per worker, comsumption per worker. How many years will it be before the consumption in country B is higher than the consumption in country A?

Reference no: EM1347288

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