11. Saving, Capital accumulation and Output

Question 1

The saving rate and output

Answer 1

1. The saving rate has no effect on the long-run growth rate of output per worker, which is equal to zero.
2. The saving rate determines the level of output per worker in the long run.
3. An increase in the saving rate will lead to higher growth of output per worker for some time, but not forever.

Question 2

The saving rate and consumption

Answer 2

-An increase in savings comes initially with an equal decrease in consumption

saving rate =0 => capital =0 => output =0 => consumption =0 (a saving rate equal to zero implies zero consumption in the long run)
saving rate =1 => higher level of capital and output => consumption =0 (a saving rate equal to 1 also implies zero consumption in the long run)
=> there must be a value 0