Question

If a country's saving rate increases, then in the long run a. productivity and real GDP per person are both higher. b. productivity is higher but real GDP per person is not higher. c. real GDP per person is higher but productivity is not higher. d. neither productivity nor real GDP per person is higher.

Answer 1

A) productivity and real GDP per person are both higher.

Step-by-step explanation:

In the long run, an increase in savings will increase total investment. If total investment increases, then the productive capacity (productivity) and the aggregate supply should also increase. An increase in investment is the best way to guarantee a sustainable increase in aggregate demand without increasing the inflation rate.

When productivity increases, the real GDP per capita also increases.