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Suppose Americans decide to save more of their incomes. If banks lend this extra saving to businesses, which use the funds to build new factories, how might this lead to faster growth in productivity? Who do you suppose benefits from the higher productivity? Is society getting a free lunch?
Chapter 1, Problem 10(choose chapter or problem)
Questions & Answers
QUESTION: Suppose Americans decide to save more of their incomes. If banks lend this extra saving to businesses, which use the funds to build new factories, how might this lead to faster growth in productivity? Who do you suppose benefits from the higher productivity? Is society getting a free lunch?
ANSWER:Step 1 of 2
If Americans save more, which leads to more spending on factories, then more capital will be available per labor. Higher capital per labor gives higher productivity and increases the overall output—furthermore, higher productivity benefits both the workers (employees) and the factory owners. The workers will be paid more as part of their wages since they are producing more, and the factory owners will get higher returns on their investments.