Key Concepts
This term refers to the portion of income not spent on consumption.
What is saving?
The production function often takes this form in economic models.
What is Y=F(K,L)?
If an economy experiences a sudden increase in the depreciation rate, capital accumulation will likely do this.
What is decrease?
A country with a high saving rate, such as China, tends to experience this effect on GDP growth.
What is rapid capital accumulation and higher output growth?
This country experienced rapid economic growth in the late 20th century due to high savings and investment rates.
What is Japan?
This model explains how capital accumulation affects output in the long run.
What is the Solow Growth Model?
If a country’s saving rate increases, its capital accumulation will likely do this over time.
What is increase?
In the long run, an economy with a high saving rate but no technological progress will experience this type of growth.
What is diminishing returns to capital?
An economy with a low depreciation rate will experience this effect on long-term capital stock.
What is higher capital stock?
The Solow Growth Model predicts that countries with lower capital per worker will experience this when capital investment increases.
What is faster growth?
The relationship between saving, investment, and economic growth suggests that higher savings lead to this.
What is higher capital accumulation and output?
The formula Kt+1=(1−δ)Kt+It represents this process.
What is capital accumulation?
If a government enforces policies that discourage saving, the long-term effect on capital accumulation would be this.
What is a decline?
Countries that invest more in education and technology often see this effect on output per worker.
What is higher productivity and economic growth?
In the 2008 financial crisis, savings rates in many countries did this.
What is increased due to economic uncertainty?
The percentage of income saved by households is known as this rate.
What is the saving rate?
In the Solow Model, the steady-state capital stock is determined by setting investment equal to this.
What is depreciation plus population growth?
If two countries have the same saving rate but different population growth rates, the country with higher population growth will have this level of steady-state capital per worker.
What is lower?
If a country suddenly increases taxation on interest income, this is the likely effect on saving rates.
What is a decrease?
The Golden Rule level of capital maximizes this economic outcome.
What is consumption per worker?
In a steady-state economy, net capital accumulation equals this.
What is zero?
If the saving rate is 25% and GDP is $1 trillion, how much is saved?
What is $250 billion?
An economy starts with a very low capital stock. If the saving rate is increased significantly, this is the immediate effect on output.
What is a gradual increase as capital accumulates?
Developing countries often struggle with low capital accumulation due to this main factor.
What is low domestic saving rates?
The transition of former Soviet economies to market economies initially caused this effect on savings and investment.
What is a sharp decline?