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

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 s_r of their income and poor people save a fraction s_p of their income, no matter what country they live in. In country A, suppose that rich people as a group receive a fraction x_A of total income, while in country B rich people as a group receive x_B fraction of total income. Assume that x_A > x_B.

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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