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    Question

    In the Solow Model, what is the impact of an increase in the savings rate on the steady state level of capital per worker?

    A It decreases the steady state level of capital per worker Correct Answer Incorrect Answer
    B It has no impact on the steady state level of capital per worker Correct Answer Incorrect Answer
    C It increases the steady state level of capital per worker Correct Answer Incorrect Answer
    D It leads to hyperinflation Correct Answer Incorrect Answer

    Solution

    An increase in the savings rate leads to higher investment in capital. As a result, the steady state level of capital per worker increases until the new level of savings and investment equals the depreciation of capital.

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