A reduction in the saving rate starting from a steady state with more capital than the Golden Rule causes investment to ______ in the transition to the new steady state.
A) increase
B) decrease
C) first increase, then decrease
D) first decrease, then increase

Question

Quizplus · Accepted Answer

Starting from a steady state with more capital than the Golden Rule, the saving rate reduction causes consumption to increase, reducing the rate of investment. Therefore, investment decreases in the transition to the new steady state.

A Reduction in the Saving Rate Starting from a Steady