In the neoclassical growth model, if the capital-labor ratio is below the (optimal) steady-state level, we should expect that
A)economic growth will continue to decline unless technological advances are made
B)income per capita will decrease since gross investment is not sufficient to supply new workers with adequate capital
C)the savings rate will decline due to the lack of economic growth
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

In the neoclassical growth model, if the capital-labor ratio is below the steady-state level, the economy is expected to experience an increase in investment in capital until the steady-state level is reached, leading to economic growth. This process does not inherently require technological advances, nor does it imply a decrease in income per capita or a decline in the savings rate due to lack of growth.

In the Neoclassical Growth Model, If the Capital-Labor Ratio Is