Answer to Question #223660 in Macroeconomics for Apex

Question

Suppose the government wants to double the steady state value of output per effective worker by using policies to change the saving rate. Determine the new saving rate and use the Solow growth diagram to show the effect of the policy change on the growth rate of capital per effective labour in both the short- and long run.

Answer 1

Higher savings leads to a higher steady state capital stock and output.