Explain the principle of transition dynamics

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Reference no: EM132118495

Question: Predicting steady states and growth rates: Consider the data in the table below

(You may find it easier to answer these questions using a spreadsheet program.)

(a) Assuming no differences in TFP (ignore the last column) or the rate of depreciation across countries, use the data in the table to predict the ratio of per capita GDP in each country relative to that in the United States in steady state.

(b) Now do the same exercise assuming TFP is given by the levels in the last column. Discuss briefly the differences you find in these two approaches.

(c) Based on the numbers you find with the TFP differences, compute the percentage gap between the steady-state income ratio and the ratio in 2010 (as shown in the table). Use the actual 2010 ratio in the denominator.

(d) Apply the principle of transition dynamics to rank the countries in order of expected growth rate over the coming decades, from fastest to slowest.

Reference no: EM132118495

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