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

Question

Quizplus · Accepted Answer

In a steady-state economy, an increase in the saving rate results in an increase in the capital-labor ratio as more resources are invested in capital accumulation. This, in turn, leads to an increase in productivity and output per worker, which can increase the consumption per worker. However, the consumption per worker may not increase in proportion to the increase in output if the economy experiences diminishing marginal returns to capital accumulation. Therefore, answer A is the closest to the correct answer.

In the Long Run,an Increase in the Saving Rate in a Steady-State