Suppose an economy experiences an increase in its saving rate. The higher saving rate leads to a higher growth rate of productivity
A)more in the short run than in the long run.
B)more in the long run than in the short run.
C)in both the short run and the long run.
D)in neither the short run nor the long run.

Question

Quizplus · Accepted Answer

An increase in the saving rate typically boosts investment, leading to higher productivity growth in the short run. However, in the long run, the effect diminishes as the economy reaches a new steady state.

Suppose an Economy Experiences an Increase in Its Saving Rate