Question

1. If the technology (production function) and all the Solow model parameters are same for two economies, they will eventually converge to the same steady state levels of per-capita capital even if they start at different levels of initial k.

True

False

2. If the technology (production function) and all the Solow model parameters are same for two economies, more time taken will be needed to reach steady state for the economy with high initial level of per-capita capital?

True

False

3. At steady state, growth rate of per-capita income is zero but growth rate of income is not zero.

True

False

4. If the Lorenz curve of country A intersect the Lorenz curve of country B from below, then which country has more inequality?

When two Lorenz curves cross, we cannot tell which distribution has higher inequality

Country A

Country B

Answer 1

1. Yeas, both economies will eventually converge because the final or the steady state depends on the savings, population and technology parameters, no matter with how much capital they have started with.

2. No, because the countries with initial low per capita capital would tend to grow faster as have higher per capita growth rates and manage to reach the higher per capita capital countries in time.

3. It is true. At the steady state, the income or the output is growing while the per capita output remains constant.

4. Two Lorenz curves cannot be compared when they cross. So if Lorenz curve of one country intersects other country's curve, we cannot be sure of which country has higher inequality because it is violating the basic assumption of Lorenz curve. In order to find one, we must use Ginni coeffient.