Answer to Question #261640 in Macroeconomics for Robert

Question

Argue for and against the application of the Income-Saving investment theory to the modern economy

Answer 1

Solution:

The application of the income-saving investment theory to the modern economy will lead to economic growth and development in a country. Savings and investment have the ability to achieve and enhance price stability, promote employment opportunities, and thus contribute to sustainable economic growth.

 

The application of Income-Saving investment theory to the modern economy can also result in negative effects such as income inequality, where income is unevenly distributed throughout a population. Huge gaps in income or income disparities will be experienced in households which will be detrimental to economic growth. A high level of savings is bad for the economy since when consumers save more, they spend less, thus reducing economic growth. Consumer spending is what boosts or enhances economic growth in an economy.