Gce Model Questions Vol1 2022 Economics Question 30

Two developing countries, A and B, are analysed using the Solow growth framework (no technological progress). For each country the following data are given for a recent three‑year period:\ - Investment as a proportion of GDP (\(s\))\ - Population growth rate (\(n\))\ - Observed average annual growth of output per worker (\(g_{obs}\))\ Assume a constant depreciation rate \(\delta = 5\%\).\ Country A: \(s = 20\%\), \(n = 2\%\), \(g_{obs}=1.5\%\).\ Country B: \(s = 15\%\), \(n = 1\%\), \(g_{obs}=2.0\%\).\ (a) Compute the implied steady‑state growth rate of output per worker \(g_{ss}= s - (n+\delta)\) for each country.\ (b) For each country, calculate the ratio \(R = \frac{g_{obs}}{g_{ss}}\).\ (c) Based on the ratios, which country is closer to operating at its steady‑state growth rate? Provide a brief explanation.