Question

Suppose americans decide to save less of their incomes, reducing the ability of banks to lend to businesses. with less funds available to businesses, workers will haveless capital equipment with which to work. this leads toslower growth in productivity.

Answer 1

If Americans decides to save less, then they will not keep the money in the bank account. They will rather spend it. This will leads to deficit in the deposits of banks and as a result bank will have less lending capacity. This reduction in lending will make it difficult for businesses to get loans which will impact their production levels and hence productivity as a whole will be reduced. Therefore, reduction in saving leads to reduction in productivity.