Question #13150309

If a nation is saving more, why would it increase capital goods?

Following is an excerpt from Mankiw - "Suppose that a government pursues policies that raise the nation;s saving rate - the percentage of GDP devoted to saving rather than consumption. With the nation saving more, fewer resources are needed to make consumption goods and more resources are available to make capital goods?" -- Here's my question - When I save a part of my salary, I don't expect to make more capital goods (today or in future). It is for consuming Goods and Services. Is this a valid explanation to the excerpt - "what one man saves is what another man borrows." ? Even in this case, how is it a valid argument that the other man is borrowing to make capital goods rather than consumption goods? I am so stuck.

2014-01-16 21:11:31

TELL US , if you have any answer

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