oneboy

SkipE99 Wrote:
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> Schweser. Session 7 pg 134. I would think that if
> people in the US started to save more, they would
> spend less, which would lead to decreased economic
> growth. Is Schweser saying here that since people
> are saving money in banks, that there is more
> capital for businesses to borrow, which leads to
> growth? Seems more like a short term decrease in
> growth followed by "possible" expansion.
> Businesses can borrow money all they like at low
> interest rates, but if people are increasing the
> savings rate they still are not spending their
> money on unnecessary expenses. Can someone
> explain this better?

Increased saving = decreased consumption all else equal, AND increased investment. Investment being part of GDP, short term growth won't be affected. Potential long term growth will benefit from these investments down the road though.

If the increase in saving is used to finance investment in China or India, there is a problem though.