Suppose an Economy Is Initially in a Steady State with Capital

question 4

Multiple Choice

Suppose an economy is initially in a steady state with capital per worker below the Golden Rule level. If the saving rate increases to a rate consistent with the Golden Rule, then in the transition to the new steady state consumption per worker will:

• A) always exceed the initial level.
• B) first fall below then rise above the initial level.
• C) first rise above then fall below the initial level.
• D) always be lower than the initial level.

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Definitions:

Planning Budget

A budget developed at the beginning of the budgeting period that is based on projected levels of activity.

Selling

Expenses incurred directly and indirectly in making sales, including advertising, sales commissions, and the cost of sales personnel.

Administrative Expenses

Overhead or indirect costs related to the general operation of a company, such as office supplies, legal fees, and management salaries.

Planning Budget

A financial plan that estimates the revenues and expenditures for a certain period of time in advance.