Question

Other things the same, when an economy increases its saving rate, a. consumption and production rise now. b. consumption rises now and production rises later c. consumption falls now and production rises later. d. consumption falls now and production falls later.

Answer 1

c. consumption falls now and production rises later

Step-by-step explanation:

Income [Y] is the total factor income earned by factors of production productive services, for economic activity.

Income earned is either consumed or saved .

Income [Y] = Consumption [C] + Saving [S]

• So, increase in savings rate & savings - reduces the consumption.

Savings are done for contingencies, for expanding economic activities later - by investment. In a simple economy model,

Savings [S] = Investment.

• So, savings increase investment & production capacity later.