Fretonia and Libstien are the same except Fretonia has a larger capital stock. B

Question

Fretonia and Libstien are the same except Fretonia has a larger capital stock. Both countries undertake policies that raise their saving rates to the same higher level. We would expect that a. both countries would have permanent increases in their growth rates, but the increase would initially be larger in Fretonia. O b both countries would have permanent increases in their growth rates, but the increase would initially be smaller in Fret naa c. both countries would have temporary increases in their growth rates, but the increase would be larger in Fretonia. O d. both countries would have temporary increases in their growth rates, but the increase would be smaller in Fretonia

Explanation / Answer

Fredonia and Libstien are the same except Fredonia have a higher capital stock. Both countries undertook policies that raise their saving rate to the same higher level. It would temporarily increase the growth rate of both countries, but the increase would be smaller in Fredonia.

So, the correct answer is an option (d)

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