Consider an economy at the steady state according to the Solow Growth Model with a per capita production function y=AK1/4 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 rises but then decreases to a new steady state level of consumption that is below the the original. 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 falls but then increases to a new steady state level of consumption that is above the the original..

1. Consider an economy at the steady state according to the Solow Growth Model with a per capita
production function y=AK1/4 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 rises but then decreases to a new steady state level of consumption that is
below the the original. 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 falls but then increases to a new steady state
level of consumption that is above the the original.