An increase in a country's saving rate will tend to cause which of the following in the long run?
A) a reduction in per capita real GDP
B) an increase in economic growth
C) an increase in the unemployment rate
D) an increase in the rate of inflation

Question

Quizplus · Accepted Answer

An increase in saving rate in a country leads to an increase in investment which in turn leads to an increase in economic growth in the long run. This is because when individuals save more, it provides banks with more funds to lend to businesses for investment purposes. This investment leads to an increase in productivity and capacity which eventually results in an increase in the country's real GDP. Therefore, an increase in saving rate does not lead to a reduction in per capita real GDP, an increase in the unemployment rate or an increase in the rate of inflation.

An Increase in a Country's Saving Rate Will Tend to Cause