Question

ECONOMICS 1A: In your opinion, are you better off saving money or spending money? Why? Please explain. In terms of length of each response, I would like to see a minimum of 3-4 well-developed paragraphs per question. Of course the word count may vary. But anything less than 3-4 paragraphs is too truncated in my opinion, and will likely earn fewer points.

Hint: Given what we have learned this quarter, are you happier/better off spending money or saving money from your personal perspective? Then take the question from a more macroeconomic perspective...does your spending or saving make the economy as a whole better off (and thus indirectly you)? How or why?

Answer 1

From personal perspective it is very obvious that saving money means that we are buying future consumption power . When we save money in a bank we get interest income on it which adds to our purchasing power . Spending money and not saving will reduce our purchasing power in future when we lose capability to earn .

But from macroeconomic perspective if spending declines in the economy it means that aggregate demand falls in the economy , this will lead to low production , slow economic growth . Consumption spending is an important aspect of GDP formation as it boosts the economy . If people save more and spend less then suppliers will lose the incentive to produce or invest in production .

But this does not mean that savings is not necessary from macroeconomic point of view . Savings form the supply of loanable funds . Savings by public are lend out by banks to investors for production and growth . So a balance of both spending and saving is important for the economy .