Refer to the following figure when answering the following questions. Figure 5.4: Solow Diagram -Consider the Solow model exhibited in Figure 5.4. Which of the following is/are true? i. For any single country, the movement from point a to b is due to an increase in the saving Rate, s₁ $\gt$ s₂. ii. For any single country, the movement from point c to b is due to an increase in capital Stock for the saving rate, s₂. iii. If s₁ and s₂ stand for the saving rates in Countries 1 and 2, respectively, Country 2 has a Lower saving rate. A) i B) ii C) iii D) i and ii E) i, ii, and iii

Question

Quizplus · Accepted Answer

i. Moving from point a to b implies an increase in capital per worker (K/L) which can only be achieved by either increasing the saving rate or improving the technology level. However, since technology level is not mentioned, we can conclude that the movement is due to an increase in saving rate.
ii. Moving from point c to b implies an increase in output per worker (Y/L) which can only be achieved by increasing the capital stock. Therefore, the movement is due to an increase in capital stock.
iii. From the diagram, we can see that Country 2 has a lower steady-state capital per worker level (K/L) than Country 1. Since the steady-state capital per worker level is determined by saving rate, it follows that Country 2 has a lower saving rate than Country 1. Therefore, statement iii is true.

Refer to the Following Figure When Answering the Following Questions >\gt>

Refer to the Following Figure When Answering the Following Questions $\gt$