Question

Explain the link between a country's growth rate, its investment spending as a per cent of GDP, and its domestic savings.

Short answer

Domestic savings and investment spending share a positive relationship with the country's growth rate.

Step-by-step solution

Explanation for the linkage between investment spending, domestic savings, and the respective country's growth rate

Whenever a country finds that the domestic savings have grown, the banks have enough money to lend out to the borrowers. The borrowers then increase their level of investments, for which the investment spending increases.

The borrowers invest the money in their respective businesses by purchasing raw materials and multifarious equipment for increasing production.When the production increases, the GDP increases, for which the country experiences a positive growth rate, and this which is how all the three variables are linked.