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Given the information above, would a policy to promote increases in private saving lead to an increase in consumption per worker in the long run?

A. Yes, the economy is beyond its golden-rule level of capital per worker, so any increase in saving will cause higher consumption per worker in the long run.

B. No, the economy is beyond its golden-rule level of capital per worker, so any increase in saving will cause lower consumption per worker in the long run.

C. No, the economy is below its golden-rule level of capital per worker, so any increase in saving will cause lower consumption per worker in the long run.

D. Yes, the economy is below its golden-rule level of capital per worker, so any increase in saving will cause higher consumption per worker in the long run.

Answer :

Final answer:

D. Yes, the economy is below the golden-rule level of capital per worker, increasing savings directs resources toward investment, which builds capital and eventually leads to higher productivity and growth. Thus, in the long run, this would increase consumption per worker.

Explanation:

The relationship between savings and consumption per worker in the long run, with respect to the golden-rule level of capital per worker.

The concept revolves around the idea that when an economy saves more, resources are shifted from consumption to investment in capital goods like machinery and tools.

Which enhances labor productivity and can lead to economic growth.

Considering that an economy is below its golden-rule level of capital per worker, an increase in private savings would allow more resources to be directed towards investment, which would in turn increase the capital stock.

Over time, the increased capital would lead to higher productivity and economic growth.

Consequently, as the economy converges to its golden-rule level of capital, the consumption per worker in the long run would increase.

Hence, the appropriate answer would be option D: Yes, the economy is below its golden-rule level of capital per worker so any increase in saving will cause higher consumption per worker in the long run.

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