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This question discusses the behavior of r*, the equilibrium real interest rate when and GDP is at full- employment and driven by production. The question
This question discusses the behavior of r*, the equilibrium real interest rate when and GDP is at full- employment and driven by production. The question often refers to a debate between Olivier Blanchard and Larry Summers at the Peterson Institute for International Economics in March 2023. This is the link to the transcripts of the debate: https://www.piie.com/sites/default/files/2023-03/2023-03-07transcript-summers-blanchard.pdf . You can also find a video of the debate online. Blanchard: ....So I think the reason why private saving played a big role pre-COVID was the increase in the life expectancy, which led to longer retirement, more need to save. Summers: And I would note that a large part of what matters in the life cycle is the ratio of, um, older people to younger people, dis-savers to savers, which for reasons relating to fertility, is going substantially up. a) Who seems to suggest that an increase in life expectancy is a cause of the drop in world r*? Who associates an increase in life expectancy to an increase in world r*? Explain. b) Who discusses the effects of an increase in life expectancy before a big portion of the population ages? Who discusses the effects of an
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