If the Savings Rate Increases in the Solow Growth Model

question 17

Multiple Choice

If the savings rate increases in the Solow growth model

• A) output per capita increases in the long run.
• B) the growth rate in output per capita increases in the long run.
• C) capital per worker grows at a higher rate in the long run.
• D) the investment rate declines.
• E) output per capita falls in the long run.

---

Definitions:

Marginal Revenue Product

The additional revenue generated from utilizing one more unit of an input, like labor or capital.

Substitution Effect

The shift in consumer behavior toward different products as a result of changes in their relative costs, prompting the replacement of one item with another.

Output Effect

The impact on the economy when production increases, leading to a higher real GDP and potentially affecting employment and price levels.

Total Revenue Product

Total Revenue Product is the total revenue generated by a firm from selling its output, which is a key concept in understanding a firm's profitability.