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    Question

    In the basic Solow model of growth

    A An increase in the savings rate raises the steady-state growth rate Correct Answer Incorrect Answer
    B An increase in the growth rate of population lowers the steady-state growth rate Correct Answer Incorrect Answer
    C An increase in the growth rate of population has no impact on the steady-state growth rate Correct Answer Incorrect Answer
    D An increase in the savings rate has no impact on the steady-state growth rate Correct Answer Incorrect Answer

    Solution

    A higher saving rate does result in ahigher steady-state capital stock and a higher level of output. The shift from a lower to a higher steady-state level of output causes a temporary increase in the growth rate.

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