If there is a change in preferences within an economy that causes the growth rate of the labour force to increase, what forces will move the economy to the new steady state

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?

A.

The increase will mean that the sum of depreciation plus labour force growth will now be less than the rate ofinvestment, and this imbalance will cause thesteady-state capital stock per worker and income per worker to both increase.

B.

The increase will mean that the sum of depreciation plus labour force growth will now be greater than the rate ofinvestment, and this imbalance will cause thesteady-state capital stock per worker to decrease while the income per worker will increase.

C.

The increase will mean that the sum of depreciation plus labour force growth will now be greater than the rate ofinvestment, and this imbalance will cause thesteady-state capital stock per worker and income per worker to both decrease.

D.

The increase will mean that the sum of depreciation plus labour force growth will now be greater than the rate ofinvestment, and this imbalance will cause thesteady-state capital stock per worker and income per worker to both increase.

Suppose an economy with the following characteristics is at thesteady-state capital stock perworker, k*1=1.19.

Production function

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:

y

=

k1/3

Savingsrate:

s

=

0.28

Depreciationrate:

d

=

0.19

Labour force growthrate:

n1

=

0.06

If there is a change in preferences that causes the growth rate of the labour force to increase to 7% (i.e., n2=0.07), thiseconomy's newsteady-state capital stock per worker will be

nothing

.

(Round to two decimal places asneeded.)

Thesteady-state income per worker for thiseconomy, originally at 1.06, will become

nothing

.

(Round to two decimal places asneeded.)