Suppose Mexico increases its saving rate. Which of the following will happen in the long run?
A)The growth rates of productivity and real GDP per person will increase.
B)Productivity and real GDP per person will increase.
C)The growth rate of productivity will increase, and real GDP per person will increase.
D)Productivity will increase, and the growth rate of real GDP per person will increase.

Question

Quizplus · Accepted Answer

In the long run, an increase in the saving rate leads to higher levels of capital accumulation, which raises productivity and real GDP per person. However, the growth rates of these variables do not necessarily increase permanently; they may increase temporarily during the transition to a new steady state.

Suppose Mexico Increases Its Saving Rate