Country A and Country B both have the same production function: Yt = [(35105 In the standard Solow model, the population and labor force are xed (Z)….

Suppose that both countries start with a capital stock per worker of 1. What are the initial levels of output per worker and consumption per worker? Remembering that the change in the capital stock is investment less depreciation, use a calculator (or spreadsheet) to show how the capital stock per worker will evolve over time in both countries. For each year, calculate output per worker and consumption per worker as well. How many years will it take before consumption per worker in Country B is higher than consumption per worker in Country A? Explain the intuition behind this result. Why is consumption per worker in Country B initially lower than in Country A, but eventually surpasses consumption per worker in Country A?

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