Two countries, T and V, start off in 2030 with identical income levels and always share the
Question:
Two countries, T and V, start off in 2030 with identical income levels and always share the identical production function with each other. Their economies behave in a Solow manner. TFP never changes, nor does population or the (shared, identical) depreciation rate.
Think of two countries if you're looking for an analogy.
For a few decades, from 2030 to 2060, V grows Very Fast while T grows Tepidly. What happens to the rental rate of capital in these two countries over these decades?
a. Multiple answers are possible, depending on the situation.
b. Rental rate of capital is rising faster in V than in T.
c. Rental rate of capital is higher in V than in T. Rental rate of capital is falling faster in V than in T.
d. Rental rate of capital is lower in V than in T.