On the Solow Diagram,an increase in the saving rate is shown by ________.
A)an upward shift of the depreciation line
B)an upward shift of the investment function
C)an upward shift of the per-worker production function
D)a downward shift of the investment function

Question

Quizplus · Accepted Answer

An increase in the saving rate leads to a higher level of investment at every level of output. This is represented on the Solow Diagram by an upward shift of the investment function. The other options are incorrect as an increase in saving rate does not affect the depreciation line or the per-worker production function. Option D is incorrect as an increase in the saving rate would lead to an upward shift of the investment function, not a downward shift.

On the Solow Diagram,an Increase in the Saving Rate Is