If the per-worker production function is y = Ak, where A is a positive constant, in the steady state, a:
A) lower saving rate does not affect the growth rate.
B) higher saving rate does not affect the growth rate.
C) lower saving rate leads to a higher growth rate.
D) higher saving rate leads to a higher growth rate.

Question

Quizplus · Accepted Answer

In the steady state, the saving rate affects the level of capital per worker, but not the growth rate. Therefore, if the saving rate is higher, the level of capital per worker will be higher in the steady state, but the growth rate will remain unchanged. Higher capital leads to higher efficiency and productivity but does not affect the rate of growth. Hence, option D is correct.

If the Per-Worker Production Function Is Y = Ak, Where