Suppose an economy is in a steady state,then its saving rate falls,once and permanently.As the economy approaches its new long-run steady state,consumption per worker is ________.
A)falling
B)rising
C)unaffected
D)either rising or falling

Question

Quizplus · Accepted Answer

According to the Solow growth model, a decrease in the saving rate permanently shifts the production function downward. As a result, the new long-run steady state has a lower level of capital per worker, which leads to a lower level of output per worker, and consequently, a lower level of consumption per worker. Therefore, consumption per worker is falling.

Suppose an Economy Is in a Steady State,then Its Saving