Sunday, October 09, 2005

More Savings or Less?

In the long run more savings, means more investment, which means a larger capital stock, which means higher output in the future. In the short run model an increased desire to save means less consumption, which means less output through the multiplier effect. This is often a little confusing, but can completely justified.

James Hamilton has a more in depth explanation here.

Keywords: ECO120, ECO305

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