Suppose a country is currently in a steady state, but it is not a Golden Rule steady state, and the current steady-state level of capital per worker is too low compared to the Golden Rule level of capital per worker.Briefly answer the following questions based on the above information and the basic Solow model.a. Should policymakers implement policies that will increase or decrease the saving rate? (1 mark)b. Will the saving rate change proposed in your answer to a. harm the economy during the transition to the Golden Rule steady state? In your answer, refer to output per worker, consumption per worker, and investment per worker. (3 marks)

In the Solow growth model, initially, the economy is in its steady state, at which the saving rate is lower than the Golden Rules saving rate. Suppose the saving rate is raised to the Golden Rules saving rate, which of the following is true for the effect on consumption per worker?A.Consumption per worker is always higher than the initial steady-state level of consumption in both the transition path and the new steady state.B.Consumption per worker is always lower than the initial steady-state level of consumption in both transition path and in the new steady state.C.Consumption per worker may be higher or lower than the previous steady-state level of consumption per worker on the transition path, but the new steady level of consumption per worker is higher.D.Consumption per worker may be higher or lower than the previous steady-state level of consumption on the transition path, but the new steady level of consumption per worker is lower.

Suppose an economy is described by the Solow model. In this economy, the saving rate is 0.15, the depreciation rate is 0.1, the population growth rate is 0.02, and the rate of technological progress is 0.05. The economy is in a steady state. If the marginal product of capital at the steady state is 0.07, then:A.the economy has more capital than at the Golden Rule steady state.B.the economy has less capital than at the Golden Rule steady state.C.the economy could have more or less capital than at the Golden Rule steady state.D.an increase in the saving rate will increase steady-state consumption per effective worker.

Suppose a closed economy can be described by the basic Solow growth model with no population growth or technological progress. If the saving rate increases, what will happen to the steady-state capital per worker and the steady-state output per worker? This is a multi answer question. You can select one or more options as the answer.A.The steady-state capital per worker will increase; the steady-state output per worker will decrease.B.Both steady-state capital per worker and steady-state output per worker will increase.C.The steady-state capital per worker will decrease; the steady-state output per worker will increase.D.Both steady-state capital per worker and steady-state output per worker will decrease.

According to the Solow model, an increase in the savings rate will lead to:  A. Lower steady-state capital stock  B. Higher steady-state output per capita  C. Faster population growth  D. Decreased labor productivity

Select the scenario that will decrease the steady-state level of capital per worker in the Solow model with technological progress. a. A decrease in the population growth rate due to a sharp fall in immigration. b. A decrease in the saving rate due to better investment incentives. c. An increase in the saving rate due to a reduction in consumers’ marginal propensity to consume. d. A decrease in the depreciation rate due to improved maintenance of capital goods.