A decline in the investment rate causes:
A)the steady-state level of output and capital to rise.
B)the steady-state level of output to rise and capital to fall.
C)the steady-state level of output and capital to fall.
D)the steady-state level of output and capital to remain constant.
E)the steady-state level of output to rise and capital to remain constant.

Question

Quizplus · Accepted Answer

A decline in investment rate means less capital is being accumulated, which will cause the steady-state level of output and capital to fall. This is because with less investment, the capital stock will not grow as much, leading to lower productivity and output levels.

A Decline in the Investment Rate Causes