Scribd
Upload
151 views

ECON 1580 Learning Journal Unit 6

The savings rate is the percentage of disposable personal income that individuals save rather than spend on consumption. A nation's savings rate reflects its economic health and potential for growth. Variables like income distribution, retirement age, borrowing restrictions, and demographics affect the savings rate. According to the Solow growth model, the savings rate determines the stability of an economy's capital stock. A higher savings rate leads to more investment and capital accumulation, resulting in higher economic output. However, while a high savings rate boosts short-term growth, it only increases long-term growth if maintained permanently. The savings rate affects output levels but not long-run growth rates.

Uploaded by

Tesfahun
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
151 views

ECON 1580 Learning Journal Unit 6

The savings rate is the percentage of disposable personal income that individuals save rather than spend on consumption. A nation's savings rate reflects its economic health and potential for growth. Variables like income distribution, retirement age, borrowing restrictions, and demographics affect the savings rate. According to the Solow growth model, the savings rate determines the stability of an economy's capital stock. A higher savings rate leads to more investment and capital accumulation, resulting in higher economic output. However, while a high savings rate boosts short-term growth, it only increases long-term growth if maintained permanently. The savings rate affects output levels but not long-run growth rates.

Uploaded by

Tesfahun
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 1

Learning journal unit 6

Considering how changing the savings rate may affect the output. “The percentage of
disposable personal income that an individual or group of people chooses to save as opposed
to spend on consumption is known as the savings rate.” (Investopedia, 2022) Since home
savings are a significant source of presidential borrowing to pay for public services, the
savings rate reflects the economic health and expansion of a nation. The income distribution
across a person's lifetime, retirement age, borrowing restrictions, and demographics are only
a few of the variables that affect the savings rate.
Regarding the effects of a change in the savings rate on production, the Solow model states
that the savings rate determines the stability of an economy's capital stock (Mankiw. n.d.). An
economy's capital stock will increase when the saving rate is strong, which will result in
higher output. Poor capital stock results in an economy's potential for low output (Mankiw.
n.d.). A country's deficit will lower national savings, which will have an impact on
investment. According to the Solow model, rapid growth will result from high savings rates,
but this effect won't last long because it may only boost growth until the economy reaches a
new steady level. A big capital stock and high output are both guaranteed if the economy
maintains a high savings rate, with the exception of a brief period. A long-term increase in
output growth per worker will follow a permanent increase in the savings rate.
Good rates of savings will result in high living standards for the nation, but little long-term
growth. The future rate of output per worker, which is equivalent to zero when technology is
not used, is unaffected by the savings rate. The balanced growth path of an economy is
affected by the savings rate's level effect, which alters the level of output per worker at any
given point in time. However, because the savings rate lacks a growth effect, it has no impact
on the expansion rate of output per worker along the balanced growth path (Romer. 1996.)
References
Investopedia. (2022). What Is the Savings Rate?
https://www.investopedia.com/terms/s/savings-rate.asp
Rittenberg, L. & Tregarthen. T. (2009). Principles of Economics.
https://my.uopeople.edu/pluginfile.php/1603657/mod_book/chapter/362797/Principles%20Of
%20Economics%20Chapter%2021.pdf
Mankiw, G. N. (1996). Macroeconomics.
https://new.mmf.lnu.edu.ua/wp-content/uploads/2018/03/Romer_adv-macroec.pdf
Romer, D. (1996). Advanced Macroeconomics. McGraw-Hill

You might also like