Your two younger brothers both looked at your notes and thought the answer to the question “what savings rate will make your country have the highest level of consumption?” was obvious. Corey thought...

Your two younger brothers both looked at your notes and thought the answer to the question “what savings rate will make your country have the highest level of consumption?” was obvious.

Corey thought “obviously you should save 0% so that you can spend all of your income on consumption.” Eric thought “obviously you should save 100% so that you can invest and become super rich.”

Both Corey and Eric both can’t see the big picture about steady state consumption. Write a short explanation to help them see the big picture. Why is the optimal saving rate generally not 0% or 100%?

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