Refer to the figure above. Suppose that output per effective worker in the economy is at point C. Suppose nothing else changes in the model exogenously. Which of the following statements is correct?
| Capital per effective worker will not change and will remain at its current level |
| Capital per effective worker must decrease over time |
| More information is needed to determine what will happen to capital per effective worker |
| Capital per effective worker must increase over time |
Homework Answers
Solution: Capital per effective worker will not change and will remain at its current level
Explanation: At the steady state output per effective worker will not change and production function or the savings rate remain at its current level
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