Suppose there is an increase in the saving rate. This increase in the saving rat

Question

Suppose there is an increase in the saving rate. This increase in the saving rate must cause an increase in consumption per capita in the long run when

1.capital per worker approaches the golden-rule level of capital per worker.

2.the saving is used for education rather than physical capital.

the rate of saving exceeds the rate of depreciation.

there is no technological progress.

technological progress depends on human capital.

1.capital per worker approaches the golden-rule level of capital per worker.

2.the saving is used for education rather than physical capital.

the rate of saving exceeds the rate of depreciation.

there is no technological progress.

technological progress depends on human capital.

Explanation / Answer

1. answer is correct

In solow model different savings rate has different consumption, the saving which has maximum consumption gives the golden level where capital for worker approaches the golden rule level of capital per worker.

MPK = d+n+g

mpk= marginal product of capital

d= depreciation rate

g= technological growth rate

n= population growth rate

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