How does private savings impact investment? Why is it important for individuals to save in an economy? How do public policies such as tax policies affect savings rates? How do government budget deficits affect interest rates?
Private savings impact investment by individuals choosing to add to the nations savings. It is important for individuals to save in an economy because by adding to the nation’s savings this contributes to the market for loanable funds. Saving is an important long-run determinant of a nation’s productivity. Public policies such as tax policies affect savings rates by taxing peoples income at a higher rate, leaving less to put into savings or investment. Government budget deficits affect interest rates by increasing them because the more the government borrows results in higher interest rates.
The US is running record budget deficits. Define crowding out. Look for an article talking about it. Do you think it’s a problem? Why or why not?
Crowding out is a decrease in investment that results from government borrowing.
I found this article: https://www.mercatus.org/publications/regulation/long-run-we’re-all-crowded-out
I agree with a lot of the article in that debt is not necessarily bad but that eventually it will catch up with us. The problem will be when we eventually hit “present day”.
Principles of Macroeconomics Spring 2020 