At the current steady state capital-labor ratio, assume that the steady state level of per capita consumption, (C/N)*, is greater than the golden rule level of steady state per capita consumption. Given this information, we can be certain that

A) a reduction in the saving rate will cause a decrease in the steady state level of per capita consumption ((C/N)).
B) an increase in the capital-labor ratio will cause an increase in (C/N).
C) the capital labor ratio will tend to decrease over time.
D) the capital labor ratio will tend to increase over time.
E) a reduction in the saving rate will have an ambiguous effect on (C/N).

ANSWER:

E