Suppose the saving rate is initially less than the golden rule saving rate.We know with certainty that a reduction in the saving rate will cause
A)a reduction in the capital labor ratio.
B)a reduction in output per worker.
C)a reduction in consumption per worker.
D)all of the above
E) none of the above

Question

Quizplus · Accepted Answer

According to the Solow growth model, a reduction in the saving rate will lead to a lower steady-state capital per worker, and thus a lower level of output per worker. As consumption per worker is a function of output per worker, it will also decrease. Therefore, all of the above options are correct.

Suppose the Saving Rate Is Initially Less Than the Golden