Why might most people, as in the United States, save less than is good for themselves and for the economy as a whole? How might policymakers encourage more saving?
What will be an ideal response?
The saving rate is determined by incentives. If the return on saving is too low, people will choose to consume, instead, even though they are vulnerable to economic misfortune and downturns. Individual vulnerability aggregates to macroeconomic vulnerability, while a low saving rate constrains investment and, thus, economic growth. Policies to increase the saving rate include reducing income tax rates, reducing the tax liability of income that is saved, raising sales tax rates, reducing taxes on the income from savings, and reducing the tax liability of business income that is contributed to employee pensions. It is important, also, to create confidence that inflation will not erode the purchasing power of savings, and that financial crises will not destroy the value of assets.
You might also like to view...
Benefits today cannot be directly compared with costs in the future because:
A. money today is worth more than money in the future. B. people do not have perfect willpower and will waste money today. C. investments aren’t always profitable. D. more information is needed to make investment decisions than is typically available.
The debt would cease to grow if
A. Interest rates fell. B. Federal expenditures were greater than federal receipts. C. The federal government balanced its budget. D. None of the choices are correct.
If the aggregate expenditure line shows, for a given price level, how planned spending relates to the level of real GDP in the economy, then which of the following is true?
a. The quantity of real GDP demanded is found where aggregate spending equals real GDP. b. The quantity of real GDP demanded is found where the consumption function crosses the 45 degree line. c. The quantity of real GDP demanded is found where intended inventory investment equals government spending. d. The quantity of real GDP demanded is found where intended inventory investment equals to zero.
In the long run, total spending affects ________, and output is determined by ________.
A. prices; meeting demand at preset prices B. inputs and productivity; prices C. inputs and productivity; total spending D. prices; inputs and productivity