Macroeconomics 20th Edition by Campbell McConnell,Stanley Brue,Sean Flynn

Exercise 14

Because investment and capital goods are paid for with savings, higher savings rates reflect a decision to consume fewer goods for the present in order to be able to invest in more goods for the future. Households in China save 40 percent of their annual incomes each year, whereas U.S. households save less than 5 percent. At the same time, production possibilities are growing at roughly 9 percent per year in China but only about 3.5 percent per year in the United States. Use graphical analysis of "present goods" versus "future goods" to explain the difference between China's growth rate and the U.S. growth rate.