Suppose two countries are identical in every way with the following exception. Economy A has a higher rate of depreciation (6) than economy B. Given this information, we know with certainty that:
A) steady state consumption in A and B are the same.
B) steady state growth of output per worker is higher in B than in A.
C) steady state growth of output per worker is higher in A than in B.
D) steady state consumption in A is lower than in B.
E) steady state consumption in A is higher than in B.

Question

Quizplus · Accepted Answer

Higher depreciation rates in Economy A mean that a larger portion of its output must be devoted to replacing capital that wears out, leaving less for consumption. Therefore, steady state consumption in A is lower than in B.

Suppose Two Countries Are Identical in Every Way with the Following