Question

Say that the economy is in steady state. Assume now that the government implements an important educational program that makes college more accessible to the population. As a result, productivity in the economy increases. The other parameters in the economy remain constant. Comparing the new steady state with the original steady state, you can claim that

investment per worker and consumption per worker have fallen

None of the above

investment per worker has fallen, but consumption per worker has risen

investment per worker and consumption per worker have risen

investment per worker has risen, but consumption per worker has fallen

Answer 1

2)let take ,

Y=A*K^0.5*L^0.5

Y/L=A*(K/L)^0.5

y=A*k^0.5. { y is Income per worker and k is capital per worker.

Iet say saving rate is s.

Investment per worker=s* y=s*(A*k^0.5)

consumption per worker=(1-s)y=(1-s)*(A*k^0.5)

Both Investment per worker and consumption per worker is positively related to A.,so

Increase in productivity will increase value of A.

So output per worker Increase ,so saving per worker and thus Investment per worker will increase.

As income per worker Increase so consumption per worker Increase.

Option A is right