Suppose there is an increase in the saving rate. Explain what effect this will have on output, output per worker, the rate of growth of output, and the rate of growth of output per worker
What will be an ideal response?
The increase in s will cause an increase in S/N and I/N. At the initial K/N, depreciation is less than investment. Alternatively, there is excess investment to offset the amount of capital that wears out. So, the capital stock will increase. This will cause an increase in K/N, Y/N, and S/N. As Y/N rises, so will C/N.
You might also like to view...
Saving is not a problem in the classical model because
A) savers and investors are the same people. B) interest rates are flexible, and savings were channeled into investment. C) the classical economists assume that saving was beneficial to people for retirement. D) saving would be spent by consumers eventually.
Explain how it is possible for a recently retired postal worker to be more wealthy than a rookie professional football player even though it is widely recognized that football players earn more than postal workers
What will be an ideal response?