It is often said that economies with larger investment rates will grow both faster and for a

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It is often said that economies with larger investment rates will grow both faster and for a longer time. Imagine two economies both of which have a capital–labor ratio that is less than the steady state ratio. Assume that these economies have identical production functions, rates of growth of labor hours, and depreciation rates. Use the Solow model to demonstrate that if country 1 has a greater investment rate than country 2, country 1 will both have a higher rate of growth in the next period and will grow to a higher level of real GDP per hour worked.
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Macroeconomics

ISBN: 9780132109994

1st Edition

Authors: Glenn Hubbard, Anthony Patrick O'Brien, Matthew P Rafferty

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