In the Solow model,if saving per worker initially exceeds investment per worker,
A)the economy will experience inflation.
B)the capital-labor ratio will increase.
C)investment per worker will decline.
D)saving per worker will decline.

Question

Quizplus · Accepted Answer

In the Solow model, saving per worker exceeding investment per worker means that the capital stock per worker is growing. This implies that the capital-labor ratio will increase. Option A is incorrect as the Solow model does not account for inflation. Option C is incorrect as, in this scenario, investment per worker is less than savings per worker. Option D is incorrect as saving per worker exceeding investment per worker implies that savings per worker are not declining.

In the Solow Model,if Saving Per Worker Initially Exceeds Investment