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

Question

1. Answer whether each of the following statements is true or false. Explain briefly. (20
points)
a. (4 points) A higher investment rate can sustain higher growth of output
forever.
b. (4 points) The higher the saving rate, the higher consumption in steady state.
c. (4 points) In steady state, output per effective worker grows at the
rate of population growth.
d. (4 points) In steady state, output per worker grows at the rate of
technological progress.
e. (4 points) 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

a) True.

Y=C+I+G+NX, so increase in Investment will have direct increase in output. it has a direct relation.

b) False . It is not necessary that higher saving rate will have higher consumption. the golden statement of capital is that saving is assoiciated with highest level of consumption in steady state. If saving rate is below in steady state then it may increase.

c) False. It is true that output will grow with the population but output per effecrtive worker remains the same.

d) True. As each worker get more capital due to technological progress, the output per worker increases.

e) true. steady state of output is impacted by saving rate. this leads to increase in growth rates that would exceed the steady state.

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