Question

Question 10 2 pts Suppose there are two very similar countries (call them Countries C and D). Both countries have the same population, and they are both experiencing the same population growth (that is, N is identical in both countries, and grows at the same rate 9N). Both countries also depreciate capital at the same rate (d) Suppose that both countries have the same technology and experience the same technological progress (9A is identical in both countries), and that we observe that both countries are in steady state. True or false, consumption per effective worker AN) must be equal in both countries. O True O False

Answer 1

The statement above is false.

This is because apart from the population growth rate, depreciation rate and technological progress rate, an important factor that determines consumption per effective worker in the economy is the savings rate in the economy. The country with a high savings rate will have low consumption per effective worker and a country with a low savings rate will have high consumption per effective worker.