Assume two economies are identical in every way except that one has a higher saving rate. According to the Solow growth model, in the steady state, the country with the higher saving rate will have ________ level of total output and ________ rate of growth of output than/as the country with the lower saving rate.
A) a higher; a higher
B) a higher; the same
C) a lower; a higher
D) a higher; a lower
E) the same; the same

Question

Quizplus · Accepted Answer

In the Solow growth model, a higher saving rate leads to a higher level of total output in the steady state because more resources are being invested in capital accumulation. However, the rate of growth of output in the long run is determined by technological progress, not the saving rate, so both countries will have the same growth rate once they reach their respective steady states.

Assume Two Economies Are Identical in Every Way Except That