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Prior to 2008-2009 recession, Americans were saving under 3% of their disposable income, but after experiencing...

Prior to 2008-2009 recession, Americans were saving under 3% of their disposable income, but after experiencing the significant recession the savings rate increased to over 6%. As of 2017, this savings rate is back down to about 3%. Explain why this return to a lower savings rate is probably not good for long term health of the economy.

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Answer #1
  • Low saving rate implies that consumption rate is very high. It will give rise to inflationary pressure if demand is not adequately responded by the increase in supply.
  • Saving is critical to make more investments. Rise in saving leads to more investment and productivities of workers also witness rise.
  • Fall in saving rate to 3 % suggests that we are preferring short run consumption over the long run investment. It is not considered good for economy as whole over the long run.
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