Question
Suppose the economy is in steady state. Steady state capital is below the golden rule level of capital. Policymakers take the necessary actions to ensure
Suppose the economy is in steady state. Steady state capital is below the golden rule level of capital. Policymakers take the necessary actions to ensure actions to ensure the economy will transition to the golden rule steady state. What will happen to output, consumption, and investment in the transition to the new steady state.
A. Output will gradually move to a lower steady state level. Consumption will jump upwards and then gradually increase to a higher steady state level. Investment will jump upwards and then gradually increase to a higher steady state level
B. Output will gradually move to a lower steady state level. Consumption will jump downwards and then gradually decrease to a lower steady state level. Investment will jump downwards and then gradually decrease to a lower steady state level
C. Output will jump upwards and then gradually increase to a higher steady state level. Consumption will gradually increase to a higher steady state level. Investment will gradually increase to a higher steady state level
D. Output will gradually move to a higher steady state level. Consumption will jump downwards and then gradually increase to a higher steady state level. Investment will jump upwards and then gradually increase to a higher steady state level
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