Suppose You Are Given the Data for Brazil and Portugal

question 21

Multiple Choice

Suppose you are given the data for Brazil and Portugal. In Brazil, the saving rate is 0.1 and the depreciation rate is 0.1, while in Portugal the saving rate is 0.2 and the depreciation rate is 0.1. Using the Solow model, you conclude that in the steady state:

• A) Brazil has a higher level of output than Portugal.
• B) Brazil has a higher capital-output ratio than Portugal.
• C) Portugal has a higher level of output than Brazil.
• D) Portugal has a higher capital-output ratio than Brazil.
• E) Portugal and Brazil have the same capital-output ratio.

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Definitions:

Assets

Resources owned by a company that have economic value and can be converted into cash.

Liabilities

Financial obligations or debts that a company owes to external parties.

Residual Equity

The amount of equity remaining for shareholders after all liabilities have been deducted from total assets.

Owner's Equity

The assets left over in a business once liabilities are cleared, showing the equity of owners or shareholders.