Suppose the following situation exists for an economy: Kt+1/N Kt/N. Given this information, we know that:
A) saving per worker equals depreciation per worker in period t.
B) the saving rate fell in period t.
C) saving per worker is greater than depreciation per worker in period t.
D) the saving rate rose in period t.
E) saving per worker is less than depreciation per worker in period t.

Question

Suppose the following situation exists for an economy: Kt+1/N > Kt/N. Given this information, we know that:
A) saving per worker equals depreciation per worker in period t.
B) the saving rate fell in period t.
C) saving per worker is greater than depreciation per worker in period t.
D) the saving rate rose in period t.
E) saving per worker is less than depreciation per worker in period t.

Quizplus · Accepted Answer

Kt+1/N > Kt/N implies that the capital stock per worker in period t+1 is greater than the capital stock per worker in period t, which means that the economy is accumulating more capital. This can only happen if the saving per worker is greater than depreciation per worker as the increase in capital stock per worker is the result of net investment, which is equal to saving per worker minus depreciation per worker. Therefore, choice C is the correct answer.

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