Answer to Question #151884 in Macroeconomics for Bamuu Bugila Abdul Jalilu

Question

10). When the Solow economy is dynamically efficient an increase in the saving rate
A. definitely decreases consumption per efficient worker in the steady-state
B. definitely increases consumption per efficient worker in the steady-state
C. may lead to no change in consumption per efficient worker in the steady-state
D. has an ambiguous effect on capital per efficient worker in the steady-state

Answer 1

A. definitely decreases consumption per efficient worker in the steady-state

because, If the savings rate is greater than the Golden Rule savings rate, a decrease in savings rate will increase consumption per effective unit of labor.