Question

The U.S. has been traditionally known as a relatively low saving country, compared to countries like Japan. The U.S. personal saving rate had seldom gone into the double digits since the early 1990s (Source: the Federal Reserve Bank of St. Louis).

In response to the coronavirus pandemic, people inevitably try to save more. We observe that the U.S. savings are rising in an unprecedented manner: the U.S. personal savings rate (personal saving as a percentage of disposable personal income) hit a historic 33% in April 2020.

What are the impacts of a rising savings on the U.S. pandemic-hit economy?

Share your thoughts. 100 word minimum type

Answer 1

Ans.
The rising savings can help finance the higher levels of the investment and boosts the productivity of the longer term. The people save more. Which enables the local banks for lending more to the firms for the investments. An economy where the savings are least which means, the economy chooses the short term consumption over a longer period of investment.
When people save more, the situation enables the banks to lend more for the firms for the investments. The rapid increase in the savings does not create the equivalent increase in the investments. Although banks experience an increase in the deposits, they become reluctant to lend the firms as the economic outlook is kind of pessimistic.