Suppose that the government makes aone-time investment in new public schoolbuildings, which results in aone-time reduction in consumption. The new public school buildings increase the efficiency with which human capital is accumulated. Determine the effects of this on the paths of aggregate consumption and aggregate output over time. Is it clear that this investment in new schools is a goodidea? Explain.

Theone-time expenditure

has no effect on

lowers

raises

the growth path of consumption and

has no change in

decreases

increases

the growth rate of consumption. The increase in the efficiency with which human capital isaccumulated, b,

decreases

increases

has no effect on

the growth rate of the economy. In the shortrun, the economy has

no change in the level of

a higher level of

a lower level of

consumption.

In the longrun, the economy will have

the same growth path for consumption and output as the original growth path.

a lower growth path for consumption and output compared to the original growth path.

a higher growth path for consumption and output compared to the original growth path.

The investment is worth it if

consumers prefer future consumption to current consumption.

consumers prefer current consumption to future consumption.

The investment is not worth it if

consumers prefer future consumption to current consumption.

consumers prefer current consumption to future consumption.