In the absence of technological progress,a decrease in the saving rate will cause which of the following?
A)decrease temporarily the growth of output per worker
B)decrease the steady state growth of output per worker
C)increase temporarily the growth of output per worker
D)increase the steady state growth of output per worker
E) have an ambiguous effect on the growth of output per worker

Question

Quizplus · Accepted Answer

A decrease in the saving rate leads to a decrease in investment in new capital, which can temporarily slow down the growth of output per worker until the economy adjusts to a new lower steady state. The steady state growth of output per worker is not affected by the saving rate in the long run, as it is determined by technological progress.

In the Absence of Technological Progress,a Decrease in the Saving