Assignment
Show all your calculations and explain all your answers
1.Consider 2 countries, Avataria and Twilightia, which can be described by the Solow model. Avataria has a capital-labor ratio that is initially twice as big as that of Twilightia, but neither country is yet in a steady state. Both countries have the same production function,
Y(K,L) = 4(K)1/2(L)1/2.
Avataria has a 10% investment rate and 8% depreciation rate, while Twilightia has a 15% investment rate and 12% depreciation rate.
(a) Calculate the steady-state capital-labor ratio for each country. Does the initial capital-labor ratio affect your results?
(b) Calculate output per worker and consumption per worker for each country. Which country has the highest output per worker? The highest consumption per worker?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.