Question

Suppose Neverland is identical to Korea, except that it has a higher saving rate. Then for Neverland, compared with Korea:

11. the steady state capital stock per person is:

a) higher b) lower c) same d) uncertain

12. the steady state growth rate in capital is:

a) higher b) lower c) same d ) uncertain

13. the golden rule capital per person is:

a) higher b) lower c) same d) uncertain

Answer 1

Given that Neverland is identical to Korea, except that it has a higher saving rate i.e Neverland has a higher saving rate.

11. Answer: a) Higher

Explanation:  We know that other thing s remaining same the higher saving rate will lead to a higher steady-state capital stock per person.

12. Answer: d ) uncertain

Explanation: It depends on the growth model we are using. A higher saving rate does not permanently affect the growth rate in the Solow model.  

13. Answer: c) Same

Explanation:  We know that to achieve the golden rule capital per person the saving rate would be not so high or low if so then it will only affect the level of consumption.