An increase in ________ leads to a higher steady-state level of output, and an increase in ________ leads to a lower steady-state level of output.
A) the saving rate; the depreciation rate
B) the saving rate; productivity
C) productivity; the initial capital stock
D) the depreciation rate; the labor stock
E) None of these answers is correct.

Question

Quizplus · Accepted Answer

An increase in the saving rate allows more capital to be accumulated, raising the steady-state level of output. Conversely, an increase in the depreciation rate means capital depreciates faster than it can be replaced, lowering the steady-state level of output.

An Increase in ________ Leads to a Higher Steady-State Level