{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

A shift in the share of consumption saving in chapter

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ere S = national saving Y = GDP C = consumption G = government spending Saving Rate Dividing both sides of the equation by the GDP in the long run (Y*), we get S C G = 1- - Y* Y* Y* where S/Y* = national saving rate C/Y* = consumption G/Y* = government share of longrun GDP The Relationship Between Saving and Investment To see the relationship between the national saving rate and the interest rate, we can rewrite the equation as C I G X 1= + + + Y* Y* Y* Y* S I X = + Y* Y* Y* The Relationship Between Saving and Investment The national saving rate (S/Y) is positively related to the interest rate because a higher interest rate results in a decrease in consumption. I/Y and X/Y are negatively related to the interest rate. An increase in government or consumption purchases will decrease t...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online