Suppose there are two very similar countries (call them Countries A and B). Both

Question

Suppose there are two very similar countries (call them Countries A and B). Both countries have thesame population and neither is experiencing population growth (that is, N is identical and constant in both countries), they both depreciate capital at the same rate (d), they both saveat the same saving rate (s), and there is no technological progress in either country. Suppose that we observe that Country A currently has twice the amount of capital that Country B has.

True or false. If Country A is in steady state, Country B currently depreciates capital faster than it saves capital.

Explanation / Answer

Answer:

If Country A is in steady state, Country B currently depreciates capital faster than it saves capital.

False

     Both countries have same population as well as same population growth; depreciate capital at the same rate, savings rate also same and no technological progress in either country. That is Country A has twice amount of capital than Country B, but the capital depreciation at same rate as well as the savings rate also same in both Countries.

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