The Solow Model with 2 Countries Consider two countries Cocoloco (C) and Sambapati (S). They are characterized as follows: Production functions: yc=20⁽½⁾,y=10⁽½⁾)
Saving rates: ,c=10%,=20%
Depreciation of capital: c=10%
=10%
a) Compute the steady state values of capital and output per capita in the two countries.
b) Cocoloco's citizens spend more than those in Sambapati. In fact, they have a lower saving rate. Is it possible that Cocoloco's citizens have, nevertheless, a higher per capita income? Why?
c) Sambapati's citizens way to have the same per capita income as the one of Cocoloco's citizens. To this purpose, how much should they change their saving rate?
d) Represent graphically the adjustment process towards the new equilibrium.