Suppose there is a decrease in the rate of saving. This decrease in the saving rate must cause a decrease in consumption per person in the long run when:
A) the rate of saving exceeds the rate of depreciation.
B) technological progress depends on human capital.
C) the saving is used for education rather than physical capital.
D) capital per worker is already less than the golden- rule level.
E) there is no technological progress.

Question

Quizplus · Accepted Answer

According to the Solow growth model, there is a steady-state level of capital per worker at which consumption per person is maximized, called the golden-rule level. If the rate of saving decreases and capital per worker is already below the golden-rule level, then there will be a decrease in consumption per person in the long run. Choices A, B, C, and E do not directly address the relationship between saving rate and consumption per person.

Suppose There Is a Decrease in the Rate of Saving