Question

Explain how an increase in the savings rate would affect a country’s present standard of living, and the future standard of living. Would an increase in the savings rate permanently or only temporarily affect the growth rate? Explain.

Note: (Please answer all parts, it's the same question. NO Handwriting please, I have difficulties understanding the handwritings, unfortunately.)

Answer 1

An increase in the savings means the increase in the amount of money which the public has in his pocket , house or the bank account. Yes definitely the increase in the savings will improve the standard of living of the present and the future generations because the public will have more money with themselves to purchase the commodities considered as the status symbol and will have the greater capacity to increase their standard of living by spending more from the amount they have saved.

But if we keep in mind the growth rate which will be affected by this increased savings is that it will permanently hamper the growth rate. The savings if they are not invested such as to yield the return is the blocked money with the public.

The blocked money cannot be helpful in increasing the growth rate. It has to come out from the pockets of the public and is to be invested for the overall and the permanent growth of the economy.

Hence the increased savings might improve the living standards but they affect the growth rate in a negative way creating the blockage of the funds.