Final answer:
A decrease in the saving rate can boost output and employment in the short run, but it can have negative effects on economic growth in the long run.
Step-by-step explanation:
In economics, a decrease in the saving rate can have an impact on the transition period and the new steady state. In the short run, a decrease in the saving rate would lead to an increase in consumer spending, which would boost output and employment. This is because when households save less, they have more disposable income to spend on goods and services, which stimulates economic activity.
However, in the long run, a decrease in the saving rate can have negative effects on the economy. When households save less, there is less capital available for investment, which can lead to lower productivity and slower economic growth. Additionally, a lower saving rate can result in a higher dependence on foreign capital, which can make the economy more vulnerable to external shocks.