Question

Please EXPLAIN why each answer was chosen

1. reduction in the saving rate will NOT affect which of the following variables in the long run?

A. the amount of capital in the economy. B. output per worker. C. capital per worker. D. the growth rate of output per worker. E. none of the above

2. Which of the following will cause an increase in output per effective worker?

A. an increase in the rate of depreciation. B. an increase in the rate of technological progress. C. an increase in the saving rate. D. an increase in population growth.

E. a reduction in the saving rate.

Answer 1

1. Option D.

• Reduction in the saving rate will not affect the growth rate of output per worker.
• This is because when the saving rate decreases, output also falls in the long run.
• This will eventually decrease the productivity growth within a nation.
• When there is no productivity growth, the growth rate of output per worker will remain remain constant in the long run.

2. Option C.

• When saving rate increases within an economy, the output per effective worker increases.
• This is because when the saving rate increases, the investment spending also increases within the economy.
• This will increase the capital stock available for the production of outputs.
• Therefore, When capital increases, the output per effective worker also increases.