According to the Solow model,an increase in the fraction of output that is saved will increase _____ in the long run.
A) investment
B) output
C) both investment and output
D) neither investment nor output

Question

Quizplus · Accepted Answer

According to the Solow Model, an increase in the fraction of output that is saved leads to more investment in the economy, which, in turn, leads to an increase in the capital stock. This increase in the capital stock, combined with technology and labor, increases the output in the long run. Therefore, the long-run equilibrium level of both investment and output will increase with an increase in the fraction of output that is saved.

According to the Solow Model,an Increase in the Fraction of Output