00:01
So the answer here, if you are simply interested in the answer, right, the answer is c, that more savings and investments do not lead to long run.
00:28
Let's try to explain that, right? so it starts off with a production function.
00:33
And you probably, if you're answering this question, seeing a production before, function before that usually says something like this that output is a function of capital and labor so when we have more savings um or more investment what we're doing is jamming more stuff into k right we are saving more and increasing k and if we increase k y is going to grow to to to grow right so we are going to get more income right so it can't be a or b, right? in both the short and the long run, if you choose to save more and do more investing, more investing means more capital, right? you might have had a law of motion that looks something like this.
01:25
Kt plus 1 equals 1 minus delta kt plus investment t.
01:31
Now maybe not.
01:32
This is something called the solo model.
01:35
But the idea here is, again, that the more you invest, the more capital, the more capital...