A DVC’s population is growing 2 percent per year and its output is growing 3 percent per year.

Here is the full solution including the answer and explanation.

Explanation
c is correct
When the level of population outgrows the level of output, then the standard of living decreases. It reduces savings and investment, so a higher level of savings would ensure a greater level of investment. Consequently, if the level of savings is 10%, which is the highest of all savings rates among all, then productivity in DVC countries would also increase, and it would help to increase the standard of living of the countries.

a is incorrect
When the population growth is more than the output growth, then the productivity of the country falls and per unit output also falls in developing countries. Consequently, if savings and investment are increased, then productivity would rise but 2%, the savings rate is too low, and choosing such a saving rate would not yield much change in the standard of living.

b is incorrect
When the government does not contribute to saving, then productivity would fall rapidly, and there would be no savings or investments in the country. Consequently, the standard of living would decrease rapidly. As a result, the government would not want to save at 0%.

d is incorrect
When the rate of savings is 5%, then productivity would increase but a higher level of saving ensures a higher standard of living. Consequently, 5% is not the highest level of savings, so the government should not consider to save at 5%, as the standard of living would not increase too much extent.