In a neoclassical growth model, if the capital-labor ratio is lower than the (optimal) steady-state level, we should expect that
A)saving is smaller than the investment requirement
B)output per capita will temporarily grow at a rate lower than population growth
C)income per capita will decrease
D)there will be a temporary increase in the capital stock that is greater than the increase in population
E)all of the above

Question

Quizplus · Accepted Answer

In a neoclassical growth model, if the capital-labor ratio is below the steady-state level, the economy will experience a period of adjustment where capital accumulation occurs at a faster rate than population growth. This is to move the economy towards the steady-state equilibrium where the capital-labor ratio is optimal. This process involves a temporary increase in the capital stock that is greater than the increase in population, facilitating higher growth in output per capita until the steady-state is reached.

In a Neoclassical Growth Model, If the Capital-Labor Ratio Is