Answer whether each of the following statements is true or false. Explain briefl

Question

Answer whether each of the following statements is true or false. Explain briefly.

a) A higher investment rate can sustain higher growth of output forever.

b) The higher is the saving rate, the higher is consumption in steady state.

c) In steady state, output per effective worker grows at the rate of population growth.

d) In steady state, output per worker grows at the rate of technological progress.

e) A higher savings rate implies a higher level of capital per effective worker in the steady state and thus a higher rate of growth of output per effective worker.

Explanation / Answer

Answer A:- A higher saving rate can sustain higher growth of output forever.

False. A higher saving rate will lead to a higher level of output in the long-run, not a higher growth of output in the long-run.

Answer C:- In steady state, output per effective worker grows at the rate of population growth

False. Output per effective worker is constant in the steady state. We are assuming that “population” means workers. What about steady-state growth rates? In steady state, total output grows at rate n + g, whereas output per person grows at rate g. Hence, slower population growth will lower total output growth, but per person output growth will be the same

Answer E:- A higher saving rate implies a higher level of capital per effective worker in the steady state and thus a higher rate of growth of output per effective worker

True. The increase of saving rate will lead to an increase of growth rate for some time, but in the new steady state, the output per effective labor is still constant.

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