Suppose there are two very similar countries call them Count

Suppose there are two very similar countries (call them Countries C and D). Both countries have the same population, and they are both experiencing the same population growth (that is, N is identical in both countries, and grows at the same rate g subscript N ). Both countries also depreciate capital at the same rate (d).

Suppose that both countries have the same technology and experience the same technological progress (g subscript A is identical in both countries), that both countries have the same savings rate, and that we observe that both countries are in steady state. True or false, output per worker (C over N ) must be equal in both countries.

True

False

Solution

Answer:

False

Consumption depends upon savings, investment and marginal propensity to consume. These variable can vary between the population of these two countries. Thus, consumption per effective worker may not be same.