Suppose two countries are identical in every way with the following exception.Economy A has a higher rate of depreciation (δ)than economy B.Given this information,we know with certainty that
A)steady state consumption in A is higher than in B.
B)steady state consumption in A is lower than in B.
C)steady state consumption in A and in B are equal.
D)steady state growth of output per worker is higher in A than in B.
E) none of the above

Question

Quizplus · Accepted Answer

A higher rate of depreciation means that the capital stock (K) in Economy A will depreciate faster than in Economy B, leading to a lower level of steady-state capital per worker (k*). Since the production function assumes that output per worker (y) increases as the capital stock per worker increases, a lower k* means that y* is also lower in Economy A than in Economy B. Therefore, steady state consumption in Economy A will also be lower than in Economy B due to the lower level of output available to be consumed.

Suppose Two Countries Are Identical in Every Way with the Following