Figure 10-5

-In Figure 10-5 above,suppose that the economy's initial steady-state point is A.An increase in the rate of national saving changes the steady-state point to

Question

Figure 10-5
 
-In Figure 10-5 above,suppose that the economy's initial steady-state point is A.An increase in the rate of national saving changes the steady-state point to

Quizplus · Accepted Answer

According to the Solow model, an increase in the rate of national saving leads to an increase in the level of capital per worker in the steady-state. This means the new steady-state will be to the right and above the initial steady-state. In the given diagram, point B is the only option that meets this condition.

Figure 10-5 -In Figure 10-5 Above,suppose That the Economy's Initial Steady-State Point