In the Solow growth model, suppose initially that the economy is in its steady state, in which the savings rate is lower than the golden-rule savings rate. Suppose the savings rate has changed to the golden-rule savings rate, which of the following is TRUE for the effect on consumption per worker? Consumption per worker may be higher or lower than the initial steady-state level of consumption on the transition path, but the new steady-state level of consumption is lower. Consumption per worker may be higher or lower than the initial steady-state level of consumption on the transition path, but the new steady-state level of consumption is higher. Consumption per worker is always higher than the initial steady-state level of consumption in both transition path and the new steady state. Consumption per worker is always lower than the initial steady-state level of consumption in both transition path and the new steady state.
In the Solow growth model, suppose initially that the economy is in its steady state, in which the savings rate is lower than the golden-rule savings rate. Suppose the savings rate has changed to the golden-rule savings rate, which of the following is TRUE for the effect on consumption per worker? Consumption per worker may be higher or lower than the initial steady-state level of consumption on the transition path, but the new steady-state level of consumption is lower. Consumption per worker may be higher or lower than the initial steady-state level of consumption on the transition path, but the new steady-state level of consumption is higher. Consumption per worker is always higher than the initial steady-state level of consumption in both transition path and the new steady state. Consumption per worker is always lower than the initial steady-state level of consumption in both transition path and the new steady state.
Chapter20: Economic Growth In The Global Economy
Section: Chapter Questions
Problem 5P
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