Question

Using the diagram show that the Solow model predicts conditional convergence of income. Use the assumption of no technological progress, draw a Transitional Dynamics Diagram.

Answer 1

Conditional convergence hypothesis - It states that countries possessing the same technological possibilities and population growth rates but different rates of savings and initial capital-labor ratio, would converge to the same growth rate, just not necessarily at the same K/L ratio. It asserts that countries can differ in consumption per capita (different steady-state ratios) however as long as they have the same population growth rate, n, then all their level variables -- capital, output, consumption, etc. -- will eventually grow at that same rate.

Transitional Dynamics= Phase diagram below