An economy is in a steady state with capital higher than the Golden Rule level. Now the saving rate falls to a level that will achieve the Golden Rule capital stock in the long run. What will happen to the level of consumption between the initial and new steady states?

Question

Answer

It will rise instantly and then will remain constant.

Answer

It will rise gradually.

Answer

It will rise instantly and then will fall gradually.

Answer

It will fall instantly and then will rise gradually.

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An economy is in a steady state with capital higher than the Golden Rule level. ...

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