Suppose, there are two countries, A and B, and each is a Solow growth model economy. In
Question:
Suppose, there are two countries, A and B, and each is a Solow growth model economy. In each country, a fraction a of the population is rich and a fraction 1 -a is poor. Suppose that rich people save a fraction sr of their income and poor people save a fraction sp of their income, no matter what country they live in. In country A, suppose that rich people as a group receive a fraction xA of total income, while in country B rich people as a group receive xB fraction of total income. Assume that xA > xB.
a. In a steady state, how does country A differ from country B?
b. How does income per person of the rich and poor compare across countries.
c. If you were a poor person, where would you rather live, in country A or country B? What if you are rich?
d. Explain your results.
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