An increase in the saving rate in a steady-state economy would cause
A)a rightward movement along the saving-per-worker curve and an increase in the capital-labor ratio.
B)an upward shift in the saving-per-worker curve and an increase in the capital-labor ratio.
C)a downward shift in the saving-per-worker curve and a decrease in the capital-labor ratio.
D)a leftward movement along the saving-per-worker curve and a decrease in the capital-labor ratio.

Question

Quizplus · Accepted Answer

An increase in the saving rate would lead to an upward shift in the saving-per-worker curve. This means that at any given level of population, there would be more saving per worker, which would increase the amount of capital available per worker. This, in turn, would increase the productivity of labor and the output per worker, leading to an increase in the capital-labor ratio.

An Increase in the Saving Rate in a Steady-State Economy