An increase in the saving rate results in a higher steady state ________.
A)growth rate of capital
B)growth rate of output per worker
C)level of consumption per worker
D)level of capital per worker

Question

Quizplus · Accepted Answer

An increase in the saving rate leads to an increase in the level of capital per worker in the steady state. This, in turn, leads to an increase in the productivity of labor and an increase in output per worker. However, the growth rate of output per worker remains unchanged since it depends on technological progress. The level of consumption per worker decreases in the short run due to the increase in saving, but it increases in the long run due to the higher output per worker resulting from the higher capital per worker.

An Increase in the Saving Rate Results in a Higher