Figure 10-2

-Initially,the economy is at point B on Figure 10-2 above.According to the Solow growth model,a dramatic decrease in the rate of saving after complete adjustment shifts the economy from ________.

Question

Figure 10-2
 
-Initially,the economy is at point B on Figure 10-2 above.According to the Solow growth model,a dramatic decrease in the rate of saving after complete adjustment shifts the economy from ________.

Quizplus · Accepted Answer

According to the Solow growth model, a dramatic decrease in the rate of saving after complete adjustment would shift the economy from point B to point D, decreasing the output and capital per capita in the long run. This is because a decrease in the rate of saving leads to a lower level of investment, which in turn reduces the amount of capital per worker and, ultimately, reduces output per worker in the steady state.

Figure 10-2 -Initially,the Economy Is at Point B on Figure 10-2 Above.According