In the Solow Model,the Faster Growth of Output That Results

question 65

Multiple Choice

In the Solow model,the faster growth of output that results from an increase in the saving rate is temporary,because ________.

• A)of diminishing marginal product of capital
• B)with a larger stock of capital,consumption is encouraged more than investment
• C)the rising capital stock depreciates at a faster rate
• D)the economy settles into a steady state in which saving no longer rises

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Definitions:

Wealth Redistribution

The transfer of income and wealth from some individuals to others by means of a social mechanism such as taxation, public services, or welfare.

Inflation

The pace at which overall costs for products and services increase, diminishing the buying power.

Paul Volcker

A former Chairman of the Federal Reserve known for his measures to combat inflation through high interest rates in the late 1970s and early 1980s.

Contractionary Policy

Economic policy measures aimed at reducing spending or increasing taxes to slow down an overheating economy.