You are asked to make a comparison of two countries, Chile and Argentina. The av

Question

You are asked to make a comparison of two countries, Chile and Argentina.

The average saving rate in Argentina is 25 percent, in Chile it is 30 percent.

(a) Assume the countries are identical in every other way (d, A, alpha = 1/3), which country would the Solow model predict to have the higher per capita real GDP?

(b) However, you find out the steady-state real per capita GDP in each of the countries is $13,000 in Argentina, and $12,500 in Chile. Given these values for y, back out the ratio of TFP (A) that would explain these differences.

Explanation / Answer

Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country's borders in a specific time period. Though GDP is usually calculated on an annual basis, it can be calculated on a quarterly basis as well (in the United States, for example, the government releases an annualized GDP estimate for each quarter and also for an entire year).

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