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:

Hypothetical Nations

Imaginary or theoretical countries used for academic or policy analysis purposes.

Domestic Quantity Supplied

The total amount of a good that producers within a country are willing and able to sell at a given price level.

Domestic Quantity Demanded

The total amount of a good or service that consumers in a specific country are willing and able to purchase at a given price.

World Price

The international market price of a good, influenced by global supply and demand conditions.