Question

Which of the following statements is true?

A) An extremely high saving rate can be counterproductive for an economy.

B) The greater the saving rate in an economy, the slower the rate of physical capital accumulation.

C) For positive growth, the consumption in an economy should always be less than the saving.

D) The greater the consumption expenditure in an economy, the faster the physical capital accumulation.

Answer 1

Question

Savings acts as the source of funds required for the investment.

So, savings is important for the economy.

However, higher savings rate implies lower consumption expenditure which translates into lower aggregate demand for goods and services.

This in result leads to lower production and increased job losses and higher unemployment.

Thus, an extremely high saving rate can be counterproductive for an economy.

Hence, the correct answer is the option (A).