Growing population and no technological progress a 5

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growing population and no technological progress (a) [5 points] It rains so much in the country A that capital equipment rusts out (depreciates) at a much faster rate than it does in the country B. If the countries are otherwise identical, in which country will the Golden Rule level of capital per worker be higher? Illustrate graphically Country B has a higher Golden Rule level of capital per worker, y g A < y g B (b) [3 points] Which country will have the faster rate of growth of output per worker in the steady state? Why? In the steady state, both countries have the same rate of growth of output per worker. Note that the growth rate of output per worker is 0 in this model 2
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Part C (10 points) Working with Macroeconomic Data According to the Solow-Swan model, if countries differed primarily in terms of their capital-labor ratios, with rich countries having high capital-labor ratios and poor countries having low capital- labor ratios, then countries that have a lower real GDP per capita income should grow faster than countries with a higher real GDP per capita. (This prediction of the Solow-Swan model assumes that countries have similar saving rates, population growth rates, and production functions.) You can test this idea using the Penn World Tables at pwt.econ.upenn.edu . Pick a group of ten countries
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