UES ? UN 2.5 points Save Answer Suppose that there are diminishing returns to ca

Question

UES ? UN 2.5 points Save Answer Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has more capital per worker and so it has more real GDP per worker than the other. Finally, suppose that the saving rate in both countries increases from 4 percent of GDP to 7 percent of GDP. Over the next ten years we would expect that the country that started with more capital per worker will grow faster. O the growth rate will not change in either country. O the country that started with less capital per worker will grow faster. both countries will grow and at the same higher rate.

Explanation / Answer

Option (c) seems correct because unconditional convergence states that country having low initial level of per capita income will grow faster. It means there is a negative relationship between initial level of per capita income and growth rate of a country. So (c) is correct according to Solow's predictions.

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