Answer :
Final answer:
In the Solow model of economics, if saving per worker initially surpasses steady-state investment per worker, the economy will experience an increase in capital per worker. This is due to a higher saving rate leading to more investments, hence an elevated capital stock. This process continues until the saving per worker balances with the steady-state investment. Option b is the answer.
Explanation:
In the Solow model, if saving (and investment) per worker initially exceeds steady-state investment per worker, then the capital per worker will increase. This is because more savings result in more investments, which eventually increases the capital stock. If this increased saving continues to be in excess of what is needed to maintain the current capital (steady-state), the economy moves towards a new equilibrium with more capital per worker. This will continue until saving per worker equals the investment needed to maintain the new level of capital per worker.
For instance, saving rates may be affected by factors like increased income or adjustment in perceived future financial security. When income increases, higher saving often follows. Alternatively, a future change such as an increased social security program may cause a decrease in the amount saved for retirement.
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