Assume that initially capital and output per unit of effective labor are less than their balanced-growth-path values. Now suppose that in this situation, the saving rate rises permanently. Sketch the resulting path of the log of output per worker and what that path would have been if the saving rate had not changed. Explain your answer.

Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter20: Economic Growth In The Global Economy
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Assume that initially capital and output per unit of effective labor are less than their balanced-growth-path values. Now suppose that in this situation, the saving rate rises permanently. Sketch the resulting path of the log of output per worker and what that path would have been if the saving rate had not changed. Explain your answer.

 

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