In the Solow growth model, suppose initially that the economy is in its steady state, in which the savings rate is lower than the golden-rule savings rate. Suppose the savings rate is changed to the golden-rule savings rate, which of the following is TRUE for the effect on consumption per worker?
Consumption per worker may be higher or lower than the initial steady-state level of consumption on the transition path, but the new steady-state level of consumption is lower.
Consumption per worker may be higher or lower than the initial steady-state level of consumption on the transition path, but the new steady-state level of consumption is higher.
Consumption per worker is always higher than the initial steady-state level of consumption in both transition path and the new steady state.
Consumption per worker is always lower than the initial steady-state level of consumption in both transition path and the new steady state.
