In the neoclassical model,an increase in the savings rate

Question

Quizplus · Accepted Answer

According to the neoclassical model, an increase in savings rate leads to an increase in capital accumulation, which in turn results in a higher capital to labor ratio. However, this increase is less than proportional as diminishing returns to capital set in. Therefore, the best choice is B, which says that an increase in savings rate results in a less than proportionate increase in the capital to labor ratio.

In the Neoclassical Model,an Increase in the Savings Rate