According to the Solow model,an increase in the capital-labor ratio will
A)always reduce steady-state consumption per worker.
B)always increase steady-state consumption per worker.
C)reduce steady-state consumption per worker if the capital-labor ratio is below the Golden rule capital stock.
D)increase steady-state consumption per worker if the capital-labor ratio is below the Golden rule capital stock.

Question

Quizplus · Accepted Answer

According to the Solow model, an increase in the capital-labor ratio will increase steady-state consumption per worker if the capital-labor ratio is below the Golden rule capital stock. This is because increasing the capital-labor ratio below the Golden rule capital stock will lead to an increase in output per worker, which will result in a higher steady-state consumption per worker. However, if the capital-labor ratio is already above the Golden rule capital stock, further increases in the capital-labor ratio will lead to a decrease in steady-state consumption per worker.

According to the Solow Model,an Increase in the Capital-Labor Ratio