In the Solow growth model, a high saving rate leads to a large steady-state capital stock...

   

Transcribed Image Text:

In the Solow growth model, a high saving rate leads to a large steady-state capital stock and a high level of steady-state output. A low saving rate leads to a small steady-state capital stock and a low level of steady-state output. Higher saving leads to faster economic growth only in the short run. An increase in the saving rate raises growth until the economy reaches the new steady state. That is, if the economy maintains a high saving rate, it will also maintain a large capital stock and a high level of output, but it will not maintain a high rate of growth forever. In the steady state, the growth rate of output (or income) is independent of the saving rate. In the Solow model, how does the saving rate affect the steady-state level of income? How does it affect the steady-state rate of growth? In the Solow growth model, a high saving rate leads to a large steady-state capital stock and a high level of steady-state output. A low saving rate leads to a small steady-state capital stock and a low level of steady-state output. Higher saving leads to faster economic growth only in the short run. An increase in the saving rate raises growth until the economy reaches the new steady state. That is, if the economy maintains a high saving rate, it will also maintain a large capital stock and a high level of output, but it will not maintain a high rate of growth forever. In the steady state, the growth rate of output (or income) is independent of the saving rate. In the Solow model, how does the saving rate affect the steady-state level of income? How does it affect the steady-state rate of growth?

Answer rating: 100% (QA)

In the Solow growth model the saving rate affects the steadystate level of income and the steadystat... View the full answer