Because investment and capital goods are paid for with savings, higher savings rates reflect a decision to consume fewer goods in the present so as to invest in more goods for the future.

Households in China save 40 percent of their annual incomes each year, whereas U.S. households save less than 5 percent. At the same time, production possibilities are growing at roughly 7 percent per year in China but only about 3.0 percent per year in the United States. Use graphical analysis of “present goods”

versus “future goods” to explain the difference between China’s growth rate and the U.S. growth rate.