Assume that a country experiences a permanent increase in its saving rate. Which of the following will occur as a result of this increase in the saving rate?
A) A permanently faster growth rate of output.
B) A permanently higher level of output per capita.
C) A permanently higher level of capital per worker.
D) Both A and B.
E) Both B and C.

Question

Quizplus · Accepted Answer

An increase in the saving rate leads to a higher level of capital per worker as there is more investment in physical capital. This, in turn, leads to a higher level of output per capita because workers have more and newer capital to work with. However, this does not necessarily lead to a faster growth rate of output as the economy may already be operating at its potential level of output.

Assume That a Country Experiences a Permanent Increase in Its