If we define

\bar { s } _ { 1 }

and

\bar { s } _ { 2 }

As the saving rates in Countries 1 and 2, respectively,

\bar { d } _ { 1 } = \bar { d } _ { 2 }

As the depreciation rates in Countries 1 and 2, respectively,

\bar { A } _ { 1 }

And

\bar { A } _ { 2 }

As productivity in Countries 1 and 2, respectively, and the production function per worker is

y _ { t } = \bar { A } \bar { K } _ { t } ^ { 1 / 3 }

In both countries, the Solow model predicts the ratio of GDP per worker in Country 1 relative to Country 2 is:
A)

\frac { y _ { 1 } ^ { * } } { y _ { 2 } ^ { * } } = \left( \frac { \bar { A } _ { 1 } } { \bar { A } _ { 2 } } \right) ^ { 3 / 2 } \times \left( \frac { \bar { s } _ { 1 } } { \bar { s } _ { 2 } } \right) ^ { 1 / 2 }

\frac { y _ { 1 } ^ { * } } { y _ { 2 } ^ { * } } = \left( \frac { \bar { d } _ { 1 } } { \overline { d _ { 2 } } } \right) ^ { 3 / 2 } \times \left( \frac { \bar { s } _ { 1 } } { \bar { s } _ { 2 } } \right) ^ { 1 / 2 }

\frac { y _ { 1 } ^ { * } } { y _ { 2 } ^ { * } } = \left( \frac { \bar { s } _ { 1 } } { \bar { s } _ { 2 } } \right) ^ { 3 / 2 } \times \left( \frac { \bar { A } _ { 1 } } { \bar { A } _ { 2 } } \right) ^ { 1 / 3 }

\frac { y _ { 1 } ^ { * } } { y _ { 2 } ^ { * } } = \left( \frac { \bar { d } _ { 1 } } { \bar { d } _ { 2 } } \right) ^ { 3 / 2 }

\frac { y _ { 1 } ^ { * } } { y _ { 2 } ^ { * } } = \left( \frac { \bar { s } _ { 1 } } { \bar { s } _ { 2 } } \right) ^ { 1 / 2 }

An Increase in ________ Leads to a Higher Steady-State Level

Multiple Choice