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      Question

      In the basic Solow model of

      growth
      A An increase in the savings rate raises the steady-state growth rate Correct Answer Incorrect Answer
      B An increase in the growth rate of population lowers the steady-state growth rate Correct Answer Incorrect Answer
      C An increase in the growth rate of population has no impact on the steady-state growth rate Correct Answer Incorrect Answer
      D An increase in the savings rate has no impact on the steady-state growth rate Correct Answer Incorrect Answer

      Solution

      A higher saving rate does result in a higher steady-state capital stock and a higher level of output. The shift from a lower to a higher steady-state level of output causes a temporary increase in the growth rate.

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