Suppose there is a decrease in the saving rate. Explain what effect this decrease in the saving rate will have on the rate of growth of output per worker.

What will be an ideal response?

ANSWER:

As described in answers for the previous chapter, a reduction in the saving rate will only temporarily affect the growth rates of Y and Y/N. Once the new balanced growth equilibrium is achieved, the growth rates of Y and Y/N will return to their original levels.