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      Question

      In the Solow Model, what is the impact of an increase in

      the savings rate on the steady state level of capital per worker?
      A It decreases the steady state level of capital per worker Correct Answer Incorrect Answer
      B It has no impact on the steady state level of capital per worker Correct Answer Incorrect Answer
      C It increases the steady state level of capital per worker Correct Answer Incorrect Answer
      D It leads to hyperinflation Correct Answer Incorrect Answer

      Solution

      An increase in the savings rate leads to higher investment in capital. As a result, the steady state level of capital per worker increases until the new level of savings and investment equals the depreciation of capital.

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