5. Consider the following statement and explain why you agree or disagree with t

Question

5. Consider the following statement and explain why you agree or disagree with this statement?: "The Solow model shows that the saving rate does not affect the growth rate in the long run, so we should stop worrying about the low U.S. saving rate. Increasing the saving rate wouldn't have any important effects on the economy." a. higher output per person. Higher labor productivity allows firms to produce more goods with the same number of workers and thus to sell the goods at the same or even lower prices. That's why increases in labor productivity can permanently reduce the rate of unemployment without causing inflation. c.

Explanation / Answer

a) I disagree with this statement a higher saving means a higher resrves. Having a higher amount of income allows to saving these means the expenses are high or low a consumer can adjust their budget to spend . The saving rate doesn't affect the steady state level of output per effective worker.

b) the right to exclude saving from income and paying to income tax these would leads to a higher saving rate so out put per person would be high . If the income earned is taxable the scope to make money over the long run gets constrained as tax will eat into your returns.

c) the higher labour production leads to decrease the rate of unemployment as the productivity is directly linked to improve standard of living in the form of higher consumption as an economy's labour productivity grows it produce more goods and services for the same amount of relative work this increases in output makes possible to consume more of the goods and sevservi for an increasingly reasonable .

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