Refer to the following figure when answering the following questions. Figure 5.4: Solow Diagram -Consider the Solow model exhibited in Figure 5.4. If a country's saving rate increases from s₁ to s₂, the economy would: A) move from point a to point b. B) move from point c to point a. C) move from point c to point b. D) move from point a to point c. E) stay at point b.

Question

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In the Solow model, an increase in the saving rate leads to a higher level of steady-state capital per worker, which translates into moving to a higher steady-state level of output per worker. This is depicted as a movement from a lower point (a) to a higher point (b) on the diagram, reflecting the economy's transition to a higher equilibrium due to increased savings.

Refer to the Following Figure When Answering the Following Questions