Suppose that every additional five percentage points in the investment rate (I/GDP) boost economic growth by one percentage point. Assume also that all investment must be financed with consumer saving. The economy is now assumed to be fully employed at
GDP $6 trillion
Consumption 5 trillion
Saving 1 trillion
Investment 1 trillion
If the goal is to raise the growth rate by 1 percent,
a. By how much must investment increase?
b. By how much must consumption decline for this to occur?