Question

Please explain in three well-structured paragraphs the impact of a change in the savings rate on the output.

Answer 1

An increase in the saving rate leads to an increase, then to a decrease, in consumption per worker in steady state. It takes a long time for output to adjust to its new higher level after an increase in the saving rate. Put another way, an increase in the saving rate leads to a long period of higher growth.

The growth rate of real GDP has been higher on average when the personal saving rate is rising than when it is falling.