Answer to Question #89501 in Macroeconomics for Sung Eun Seok

Question

Is a high savings ratio a requirement for funding a high ratio of investment to GDP over the longer term? Please provide a brief explanation

Answer 1

no, it's not. In theory, they think that savings are equal to investments. In practice, the savings that are at home in a closet / safe are not investments, this is money out of circulation, out of the economy.

If people start saving more, spend less, demand for goods will decrease, which will cause a downturn in the economy. and this recession can be both short-term and long-term.