Briefly explain what effect a reduction in the saving rate will have on growth
What will be an ideal response?
A reduction in the saving rate will reduce investment, capital and output. During the adjustment process, the rate of growth of output will be negative. However, at some point, I, K and Y will no longer fall. So, the reduction in the saving rate will not have a permanent effect on the rate of growth of output.
You might also like to view...
For 2016, the maximum taxable income for Social Security purposes is
A. $118,500. B. $97,500. C. unlimited. D. $51,125.
A critical assumption in the model of demand and supply is the independence of the demand and supply curves. If the two are not independent from each other, a shift in the supply curve can lead to a shift in the demand curve referred to as:
a. supply-side economics. b. ceteris paribus. c. supply shocks. d. supplier-induced demand. e. the fallacy of supply.
GNP is the:
A. aggregate final output of the citizens and businesses of an economy in a one-year period. B. total market value of all final goods and services produced in an economy in a one-year period. C. aggregate output of the citizens and businesses of an economy in a one-year period. D. total market value of all goods and services produced in an economy in a one-year period.
If the MPC = 0.8, an increase in investment spending from $35 billion to $38 billion will increase real GDP by
A) $3 billion. B) $3.75 billion. C) $15 billion. D) $24 billion.