Economic Growth And Saving Rate Essay

769 words - 4 pages

Economic SYNOPSES
short essays and reports on the economic issues of the day
2009 I Number 46

Personal Saving and Economic Growth
Daniel L. Thornton, Vice President and Economic Adviser
he U.S. personal saving rate increased to nearly 5
a simple observation. Nevertheless, the direction has been
percent in the second quarter of 2009. Although
positive.
saving has its advantages, many analysts fear that a
That personal saving and growth are likely to be posirising saving rate could hamper the economic recovery:
tively related in the long run does not preclude the possibilConsumer expenditures are such a large component of
ity that a higher saving rate can slow economic growth in
...view middle of the document...

4 percent rates, respectively.
Most economists believe that
long-run economic growth is directly
20
Personal Saving Rate
linked to economic fundamentals
Growth Rate of Real GDP
such as the stock of capital, techno15
logical innovation, trade policies,
government tax policies, and so on.
10
A higher saving rate does mean less
consumption, but it could also result
5
in more capital investment and, ultimately, a higher rate of economic
0
growth. In this respect, it is interesting that the growth rate of real GDP
–5
has been higher on average when
the personal saving rate is rising than
–10
when it is falling. Of course, it would
be incorrect to conclude that the
–15
higher saving rate was responsible for
the faster economic growth, because
SOURCE: Bureau of Economic Analysis/Haver Analytics.
many things that affect economic
growth are not accounted for in such
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