Consider an economy at the steady state according to the Solow
Growth Model with a per capita production function where
n=0.04, d=0.08, and s=0.3. Suppose a change in the age profile of
the population leads to a reduction of the savings rate to s=0.28.
As a result,
consumption initially falls and continues to decline until
reaching the new steady state.
consumption initially rises and continues to increase until
reaching the new steady state. that is above the original.
consumption initially rises...