In the Solow growth model,from an initial steady state with fixed values of A,d,and n,an increase in the national saving rate causes the standard of living to
A)rise temporarily,and then fall back to its initial level.
B)rise and then hold constant at a new higher level.
C)grow at a slower rate temporarily,and then return to the initial growth rate.
D)grow at a permanently faster rate.
E)not change at all in the short run or the long run.

Question

Quizplus · Accepted Answer

In the Solow growth model, an increase in the national saving rate leads to a higher level of investment in physical capital. This results in an accumulation of capital per worker, which raises productivity and the standard of living. The economy moves to a new steady state with a higher level of output per worker, where it remains constant at this new higher level. The growth rate eventually returns to its initial rate, determined by the rate of technological progress and population growth, but the standard of living remains at the elevated level achieved by the higher saving rate.

In the Solow Growth Model,from an Initial Steady State with Fixed