Please explain in details the impact of a change in the savings rate on the output

 

Answer:

A change in the savings rate has a considerable impact on the output in an economy. This is because the saving rate determines the level of output in an economy. If the savings rate increase, the economy will experience higher growth in the level of output in the short-run. However, if the savings rate decrease, the economy will experience lower growth of the output in the short-run. Note that in the long-run, the change in the savings rate has no impact on the long-run growth of output.

 The saving rate does not have an impact on the long-run growth rate of the output per worker, but it has an effect on output per worker in the short-run. In the long-run, the saving rate actually determines the output level per worker. This is the reason the nations that have higher saving rates realize higher output per worker. Note that the savings rate is equivalent to investment in an economy. Thusly, if savings rate is high, it means the level of investment is high and if savings rate is low, it means the level of investment is low.  

The changes in the savings rates influence output in an economy.  When the savings rate increases the output per worker will be higher for some time. The increase in savings rate makes output per worker to rise to the new steady state. The increase in output will actually end once an economy reaches a new higher steady state.  Nevertheless, a lower savings rate or a decrease in savings rate results in the lower steady-state and output per worker that is lower. 

Reference

Gottheil, F. M. (2013). Principles of economics. Mason, Ohio: Cengage Learning.