In a neoclassical growth model in which a one-time advance in technology occurs we could expect
A)the level of saving and investment to increase until a new and higher steady-state capital-labor ratio is reached
B)the level of income per capita to increase but the steady-state growth rate of output to remain unaffected
C)the level of output for any given capital-labor ratio to increase
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

In the neoclassical growth model, a one-time advance in technology will lead to an increase in productivity and output for any given capital-labor ratio, which implies that the level of output for any given capital-labor ratio will increase (Option C). This will lead to an increase in income per capita, as the economy grows towards a new and higher steady-state capital-labor ratio. To reach this new steady-state, saving and investment levels will also increase (Option A). As a result, we can expect all three outcomes listed in the answer choices, making Option D the correct answer.

In a Neoclassical Growth Model in Which a One-Time Advance