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Solutions to Assignment 3
1. The percapita production function is:
y
=
Ak
1
=
3
The ratio of output in countries A and B is therefore given by:
y
a
y
b
=
A
a
A
b
(
k
a
k
b
)
1
=
3
Plugging in
y
a
y
b
= 1
:
5
and
k
a
k
b
= 2
, we obtain
A
a
A
b
= 1
:
19
.
2. There is no contradiction. The Solow model implies that the steadystate rate of growth of
any country is independent of its rate of saving. However, out of steadystate, the rate of growth
does depend on the rate of saving. The Solow model implies that if two countries have the same
rate of saving, the richer country must be growing slower, and this is what tests of convergence are
based on.
3. (a) The e¢ cient allocation of labor across sectors requires that the value of the marginal
be the marginal product multipled by the price of the product. So if we have two sectors A and B,
the condition for e¢ ciency is:
P
A
MPL
A
=
P
B
MPL
B
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This note was uploaded on 10/03/2009 for the course ECON 3710 taught by Professor Amalavoyalchari during the Fall '08 term at Cornell.
 Fall '08
 AMALAVOYALCHARI

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