Question

A relatively low saving rate affects productivity growth by: a. decreasing consumption spending and increasing investment in human capital. b. reducing the tax base and preventing the government from providing public goods. c. causing a shortage of funds for investment in physical capital. d. stimulating imports and increasing the trade deficit.

Answer 1

C. Causing a shortage of if funds and for investment in physical capital

Step-by-step explanation:

Savings literally means income not spent or deferred consumption. It involves reducing expenditures on goods and services.

Investment is the allocation of resources in expectation of a benefit in the future. It is the acquiring of assets to yield return.

In economics, savings(S) equals investment(I), that is,

S=I. Savings translate to invest.

This can be concluded that low savings translate to low investment while high savings translate to high investment.

Answer 2

C) causing a shortage of funds for investment in physical capital.

Step-by-step explanation:

In economics, savings equals investment. Higher investments result in higher productivity, that is why the savings rate of a country is the single most important factor in determining future economic growth.

Low savings rate means that current consumption is very large, and that benefits economic growth on the short run (very short run, like 1 or 2 years), but future economic growth will suffer from it.

Imagine your house as the total economy of a nation. You earn $1,000 per month and must decide how much to spend right now and how much to save for future spending. If you spend the $1,000 right now, you will purchase several things and enjoy them immediately. But what happens in one or two weeks. Since you do not have any more money left, you cannot purchase anything else, which reduces your future joy.

Investment increases future wealth and fosters economic prosperity.