Endogenous growth theory - savings rate

CFA Level II
#1

Endogenous growth theory - savings rate

Endogenous growth theory allows for a permanent increase in growth rate attributable to an increase in savings rate.

What high saving rate implies?

  • Banks have more capital to lend?
  • Banks offer lower rate to lend?
#2

Both. You save more money at the bank. The banks have more capital to lend and can loan out to more projects. This multiplied amongst other savers at their banks means more competition to lend which brings down rates.

#3

Thanks. But curious how to keep increasing saving rate…(Under Endogenous growth theory)

#4

Another question…

What driving the saving rate? Thanks.