Question: Calculate the ratio of capital per capita between the two countries. Explain your deriva- tions carefully.

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Assume that the Solow model provides an
accurate representation of the two Germanies
around the late 80s and early 90s. Although in
1990 both countries re-unified, for this problem
we will treat them as two separate economies,
and we will model the effects of the
reunification as a one-time flow of resources
(capital and/or labor) across the common
border.
Aside from being in steady state initially, assume
that before the re-unification both economies
had the same saving rate, the same rates of
population growth and depreciation, and that
capital was equally important for production in
both countries, with a common value of a = 1/2.
Question: Calculate the ratio of capital per
capita between the two countries. Explain your
deriva- tions carefully.
Transcribed Image Text:Assume that the Solow model provides an accurate representation of the two Germanies around the late 80s and early 90s. Although in 1990 both countries re-unified, for this problem we will treat them as two separate economies, and we will model the effects of the reunification as a one-time flow of resources (capital and/or labor) across the common border. Aside from being in steady state initially, assume that before the re-unification both economies had the same saving rate, the same rates of population growth and depreciation, and that capital was equally important for production in both countries, with a common value of a = 1/2. Question: Calculate the ratio of capital per capita between the two countries. Explain your deriva- tions carefully.
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