Assume that the saving rate decreases. We know that this decrease in the saving rate will cause which of the following?
A) A permanently lower rate of growth of output per capita.
B) A temporary decrease in the level of output per capita.
C) No permanent change in the level of output per capita.
D) A decrease in the capital- labour ratio.
E) A temporary increase in the rate of growth of output per capita.

Question

Quizplus · Accepted Answer

When the saving rate decreases, there will be less investment in capital goods, meaning that the capital-labor ratio will decrease. This will result in a decrease in the level of output per capita on a temporary basis. However, it is not a permanent change in the level of output per capita.

Assume That the Saving Rate Decreases