1. Assume that there are two countries with the following characteristics. Per capita Output Y = A.kª.h¹-a A-technology k- per capita physical capital h-per capita human capital a-0.6 Country A with $500 per capita income saves 25% of its output and invests on physical capital, and 25% on investing in human capital. Country B with $5000 per capita income saves 25% of its output and invests on physical capital, and 35% on investing in human capital. a. What are the growth rates of the two countries? b. What will be the per capita income levels after 5 years? c. Will there be convergence on the per capita income in the future?

1. Assume that there are two countries with the following characteristics. Per capita Output Y = A.kª.h¹-a A-technology k- per capita physical capital h-per capita human capital a-0.6 Country A with $500 per capita income saves 25% of its output and invests on physical capital, and 25% on investing in human capital. Country B with $5000 per capita income saves 25% of its output and invests on physical capital, and 35% on investing in human capital. a. What are the growth rates of the two countries? b. What will be the per capita income levels after 5 years? c. Will there be convergence on the per capita income in the future?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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