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:

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