In the 1980s, the saving rate in Japan was extremely high. The saving rate ranged between 30 percent and 32 percent. Since saving leads to investment, is a very high saving rate always good for the economy? A. Yes, because a high saving rate allows the economy to invest in more physical capital, which increases income more than a low saving rate would. B. No, a high saving rate cannot lead to sustained economic growth because depreciation always drags aggregate output back down, forcing the economy to spend some of its income on investment. C. No, a high saving rate cannot lead to sustained economic growth because there is a maximum amount of aggregate income that an economy can achieve by increasing saving, since the economy can never exceed a saving rate of 100 percent. D. Yes, because a high saving rate increases income more than a low saving rate, which allows the people to consume more.

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Business

Colin Eaton

11 December, 17:43

In the 1980s, the saving rate in Japan was extremely high. The saving rate ranged between 30 percent and 32 percent. Since saving leads to investment, is a very high saving rate always good for the economy? A. Yes, because a high saving rate allows the economy to invest in more physical capital, which increases income more than a low saving rate would. B. No, a high saving rate cannot lead to sustained economic growth because depreciation always drags aggregate output back down, forcing the economy to spend some of its income on investment. C. No, a high saving rate cannot lead to sustained economic growth because there is a maximum amount of aggregate income that an economy can achieve by increasing saving, since the economy can never exceed a saving rate of 100 percent. D. Yes, because a high saving rate increases income more than a low saving rate, which allows the people to consume more.

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Cedric Buckley · Answer 1

C) No, a high saving rate cannot lead to sustained economic growth because there is a maximum amount of aggregate income that an economy can achieve by increasing saving, since the economy can never exceed a saving rate of 100 percent.

Explanation:

A high savings rate is very useful because the money that is not used to consume goods today, can be used for investment which will yield interests that increase the consumption of goods in the future. The problem is that exactly as too much consumption and little savings is bad, too much savings and too few consumption is also bad. The largest component of a country's GDP is usually private consumption which allows the economy to grow. There is a limit to how much money can be saved in a country, since too much saving will decrease current economic growth.