How much money should be saved in an economy and how much should be invested in
capital? This question is difficult to answer. Some countries, like Japan, have very high
savings rates. Others, like the US, have very low savings rates. In both cases, the exact
effect on the growth of productivity is unclear. In general, the savings rate that
corresponds to the golden rule level of capital is considered optimal. This is defined as
the savings rate that maintains the level of capital associated with the higher per worker
consumption rate. In general, a savings rate that is as high as possible without
significantly reducing the standard of living of the population is desirable.
Regardless of the savings rate, expenditures on capital directly affect the growth rate of
an economy. They inject the economy with new tools, machinery, and training. These
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- Fall '10
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- savings rate, low savings rates.
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