Suppose an economy experiences a decrease in the saving rate. We know with certainty that this decrease in the saving rate will:
A) decrease the growth of output per worker only temporarily.
B) increase the steady state growth of output per worker.
C) increase the growth of output per worker only temporarily.
D) have an ambiguous effect on the growth of output per worker.
E) decrease the steady state growth of output per worker.

Question

Quizplus · Accepted Answer

A decrease in the saving rate will lead to a temporary decrease in the growth of output per worker as the economy adjusts to a new lower steady-state level of capital per worker, but it does not affect the long-term growth rate, which is determined by factors like technological progress.

Suppose an Economy Experiences a Decrease in the Saving Rate