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06 Question (3 points) Consider two economies, one developing and one developed. Both economies have access to the production

Part 1 (1 point) According to the Solow growth model, you would expect the to be closer to its steady state. developed econom

Part 2 (1 point) See Hint According to the Solow model, investment in the would yield relatively greater returns. developed e

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Answer #1

Part 1

According to solow growth model (DEVELOPED ECONOMY ) is closer to its steady state.

This is because the developed country utilizes 4 units of capital so its real gdp will grow tremendously and after a point of high growth it will reach a steady state..typical phenomenon in developed countries.

Part 2

Investment in (DEVELOPING EC) would yield relatively greater returns

Because greater part of the investment is in capital which will provide you greater returns in long term.

PART 3

ANS : A

This is inconsistent with convergence because developed country will not become poor..they will reach a stable point beyond growth rate will be small because of their huge GDP. Over time developed countries will converge with developed countries provided they invest in capital.

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