Question

3. The amount of education a person receives varies substantially among countries. Suppose you were to compare a country with a less educated labor force (with labor efficiency E1 and a country with a highly educated labor force (with labor efficiency E2). Assume that education affects the level but not the growth of the efficiency of labor, that is E1 E2, but gi=82. Otherwise, assume that the countries are identical they have the same saving rate (s), the same depreciation rate (8), and the same population growth rate (n). Both countries are described by the Solow model and are in their steady states. a. Are the steady-state levels ofincome per efective workerỢ * ) in both countries the same (? Illustrate your answer with a Solow graph (axes expressed in "per effective worker"). (8 points) b. Are the steady-state levels of income per worker (y*) in both countries the same? Use your answer in part (a) to algebraically determine whether y*i -y*2. (6 points) C. Are the steady-state growth rates of income per effective worker (growth У* ), of income per worker (growth y*) and of total income (growth Y*) in both countries the same? Explain. No graph is required. (6 points)

Part A requires a drawn Solow graph

Answer 1

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