Suppose That Two Countries Share Identical Levels of Total Factor

question 59

Multiple Choice

Suppose that two countries share identical levels of total factor productivity, identical labour force growth rates and identical savings rates. According to the Solow model,

• A) the country with the greater initial level of output per worker will grow more rapidly than the country with the smaller initial level of output per worker.
• B) the country with the smaller initial level of output per worker will grow more rapidly than the country with the greater initial level of output per worker.
• C) both countries will have the same growth rates of output per worker, even if they start out with different levels of output per worker.
• D) if both countries start out with different levels of income per worker, both countries may have different growth rates of output per worker, but we cannot be certain which country will have the higher growth rate of output per worker.
• E) the country with the smaller initial income per worker will grow more rapidly than the country with the greater initial level of income per worker.

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Definitions:

Salvage Value

The estimated residual value of an asset at the end of its useful life.

Opportunity Cost

The receipts from the next most valuable forgone alternative when making a decision or choice among many options.

Opportunity Cost

The value of the best alternative foregone where a choice needs to be made between several mutually exclusive alternatives.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return.