One method to endogenize this parameter involves looking for a consumptionÂ­maximizing "path" over time; that is done in the RamseyÂ–CassÂ–Koopmans model.
In a large open economy under the ISLM model, a reduction in this parameter leads to a lower interest rate, lowering net capital outflows, raising the exchange rate and reducing net exports. One method to endogenize this parameter involves looking for a consumptionÂ­maximizing "path" over time; that is done in the RamseyÂ–CassÂ–Koopmans model. In another model, this parameter's optimum value is the ratio of the marginal product of capital to its average product; that value is the (*) "golden rule" value for this parameter in the Solow model. This quantity is unusually high for Chinese and Japanese households and businesses. Ben Bernanke explained low longÂ­term interest rates in the 2000s with a "glut" in this quantity. This quantity is the S in ISLM. For 10 points, name this rate of deferred consumption, the percentage of income that is not spent.
In a large open economy under the ISLM model, a reduction in this parameter leads to a lower interest rate, lowering net capital outflows, raising the exchange rate and reducing net exports.
savings rate