Question

In the long run, an increase in the saving rate in a steady-state economy will cause A. a decrease in the capital/labor ratio and an increase in consumption per worker B. an increase in the capital/labor ratio and a decrease in consumption per worker. C. an increase in the capital/labor ratio and an increase in consumption per worker. D. a decrease in the capital/labor ratio and a decrease in consumption per worker.

Answer 1

Answer: C) an increase in the capital/labor ratio and an increase in consumption per worker

Explanation:

 An increased in the saving rate in a steady state caused the increased in the consumption for each worker when the ratio of the capital labor become capital stock under the golden rule. As, the rate of the higher saving automatically increased the growth of the economical rate. When there is shifting from lower to higher in the steady state then, the rate of the growth increased.