Question

2. Convergence Suppose there are 5 countries in the world. All 5 have the save production function, investment rate, and depreciation rate s0.3 8 0.1 They differ in only one way: they each start with a different level o capital Countr Malawi Bangladesh Bolivia Mexico Britain 4 16 36 64 2.1. Fill in the column labeled Yo for each country. This is the initial level of GDP. What is the gap in GDP between the richest and poorest country? (That is, what is the difference between GDP in the richest and poorest country?) 2.2. Without doing any math: what does the Solow model predict will be the gap in GDP between the richest and poorest country in the long run? 2.3.Solve for the steady state level of capital for Malawi and add this to the table in the column abeled K. Then fill in the rest of the column (Do we need to do any more math to fill in the rest of the column?)

Answer 1

Nation	initial capital	initial output	K*	Y*	growth rate of output (%)
Malawi	1	10	900	300	2900
Bangladesh	4	20	900	300	1400
Bolivia	16	40	900	300	650
Mexico	36	60	900	300	400
Britain	64	80	900	300	275

Answer 2.2)

Solow model predicts the unconditional convergence in long run, that is the difference between the richest & poorest nation will get eliminatined, bcoz solow model predicts that in long run, given the similar parameter, all nations will reach a particular steady state level of per capita income , irrespective of initial state of each of the Economy, measured by their initial per capita income levels.