Consider two economies: A and B. Both have identical parametersa =1/3,s =.2, L =30, and A =1. However, Economy A has depreciationrate d = 0.03 while Economy B has d = 0.10. Both economies startwith K0 = 10.
- Which economy is richer in year 0 (calculate GDP per capita foreach country).
- Which economy has higher consumption per person in year 0(calculate C per capita).
- After 50 years, which economy is richer in year 0 (calculateGDP per capita for each country).
- After 250 years, which economy is richer in year 0 (calculateGDP per capita for each country).
- In light of your findings, does it matter – in the long run –how quickly the capital stock depreciates in an economy.
