An article in the Economist argues, “As China’s
capital accumulates, its population ages and its
villages empty, saving will grow less abundant
and good investment opportunities will become
scarcer.”
a. Why might an aging population lead to a
lower saving rate? Why might China’s saving
rate fall as it accumulates more capital?
b. Discuss the likely consequences of these
trends for China’s steady-state value of real
GDP per capita.