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True or False and explain why: Assume two economies are identical in every way except that...

True or False and explain why:

Assume two economies are identical in every way except that one has a lower saving rate. According to the Solow growth model, in the steady state the country with the lower saving rate will have a lower level of total output and a lower rate of growth of output per worker as/than the country with the higher saving rate. Support your answer with a graph of the solow model.

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Answer #1

Assume two economies are identical in every way except that one has a lower saving rate.

FALSE because According to the Solow growth model , in the steady state the country with the lower saving rate will have a lower level of total output than the country with the higher saving rate and same rate of growth of output per worker as the country with the higher saving rate.

Because when two economies are same in every aspect ,this means technological growth rate i.e g is also the same for both countries. And at steady state ,growth rate of output per worker is equal to g which is same for both countries.

And a country with lower saving rate will have a lower level of total output in the steady state , this is shown in the below graph:

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