Suppose Americans decide to save more of their incomes. If banks lend this extra saving to businesses, which use the funds to build new factories, this leads to _ (faster or slower) growth in productivity because workers will have _ (more or less) equipment with which to work.

a) True or False: Only factory owners will benefit from the higher productivity because they will receive a return on their additional investment.

b) True or False: Society receives a "free lunch" when it builds new factories.

Suppose Americans decide to save more of their incomes. If banks lend this extra saving to businesses, which use the funds to build new factories, this leads to faster growth in productivity because workers will have more equipment with which to work.

a. The benefits from higher productivity is received by every participants in the society, i.e., factory owners, in terms of increased profit, workers in terms of increased income (normally equal to value of marginal product).

b. The society doesn’t receive a “free lunch” because there is an inter-temporal trade-off between savings today and increased consumption tomorrow due to increased productivity.