Suppose the following situation exists for an economy: Kt+1/N

Question

Suppose the following situation exists for an economy: Kt+1/N < Kt/N. Given this information, we know that:
A) consumption per worker will tend to fall as the economy adjusts to this situation.
B) saving per worker equals depreciation per worker in period t.
C) The saving rate increased in period t.
D) saving per worker is greater than depreciation per worker in period t.
E) saving per worker is less than depreciation per worker in period t.

Quizplus · Accepted Answer

The given inequality Kt+1/N < Kt/N implies that the capital per worker is decreasing over time. This means that the economy is not saving enough to replace the capital lost due to depreciation, which leads to a situation where saving per worker is less than depreciation per worker in period t.

Suppose the Following Situation Exists for an Economy: Kt+1/N