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The people of Country X save 10 percent of their income, and the people of Country...

The people of Country X save 10 percent of their income, and the people of Country Y save 25 percent of their income. If these respective saving rates persist forever, will one country or the other enjoy a higher rate of income growth forever? Explain.

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Answer #1

In economics model we discuss, Saving = Investment.

Country X saves = 10% of their income

Country Y saves = 25% of their income

First of all, we do not know the income level of both the countries. Assume that income of both countries are same, money saved in country Y will be more than country X which will be invested in long run and give fruitful results and raise economic growth. Rise in economic growth will raise employment level in country Y which tends to raise output per capita.

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