Question

1- What percentage of annual income did Americans typically save? What 2 benefits came from doing this?

2- Why do Keynesian economists see savings as “detrimental to growth”?

3- Which does the author believe is a more important characteristic in an economy; people spending money or the production of goods? Explain your answer.

Answer 1

1.

Rich people in the country (nearly 10% of total population) save around 20% of their annual income. The bottom (middle class and lower middle class) that is nearly 90% of total population save around 10% of their annual income; in some year it becomes negative as well, suppose in the year 2006 the saving rate was around -9%.

Benefits: (1) Lower saving makes higher GDP, which is the indicator of economic growth. GDP has components like consumption, saving, etc. People save less means spend more, which increases such components and increases the GDP.

(2) Small saving has an indirect effect on unemployment. Since the ideal money in the economy is low, the economy becomes much more active; it means more production, more projects, expansions, etc. In those cases the demand of labor becomes high, which reduces unemployment.