Question

Suppose there are two very similar countries (call them Countries A and B). Both countries have the same population and neither is experiencing population growth (that is, N is identical and constant in both countries), they both depreciate capital at the same rate (d), they both save at the same saving rate (s), and there is no technological progress in either country.

Suppose that we observe that Country A currently has twice the amount of capital that Country B has. True or false. If Country A is in steady state, Country B currently depreciates capital faster than it saves capital.

A) True

B) False

Answer 1

Answer. B) False.

Country A is in steady state, which means it saves in the same rate as it depreciates, i.e its saving and depreciation rate is same, which is the case in steady state.

Now we know that Country B is having the same saving and depreciation rate as country A which tells us that country B is depreciating and saving at the same rate, i.e their savings rate and depreciation rate is the same.So, there is no way it could be true.