Suppose two countries are identical in every way with the following exception: Economy A has a higher saving rate than economy B. Given this information, we know with certainty that:
A) steady state growth of output per worker is higher in A than in B.
B) steady state consumption in A and B are the same.
C) steady state consumption in A is higher than in B.
D) steady state consumption in A is lower than in B.
E) None of the above.

Question

Quizplus · Accepted Answer

In the Solow growth model, a higher saving rate leads to a higher steady-state level of capital per worker and output per worker, but it does not necessarily imply higher steady-state consumption. The relationship between saving rate and steady-state consumption is ambiguous without additional information.

Suppose Two Countries Are Identical in Every Way with the Following