Question

The role of a bank is to move funds from savers to spenders. What happens when savings rates are too high? An example would be people saving so much money that the banks cannot keep up? Would you agree that the United States is in that situation now? What could the Federal Reserve do to help solve that problem?

Answer 1

There are some possible outputs when saving rates are too high. The reason can be increased interest rate had led to the increase in marginal propernsity to spend is lower that lead to the increase in savings.

why people save? ? ?

# They have a manifestation of a fear of not having enough in future.

1. when savings are too high it leads to decline in the GDP.

2.People are spending less income than they are receiving. To stabilize the situation the government take up the initiative either by increasing the debt of sectors, households have brought bonds, shares to bring safer asset for future.

3. Natural downfall of demand occurs that is filled up through borrowing.

If we see at the data American are saving more and its impact on economy is still a problem. Deutsche Bank suggests that the saving rate may stabilize and even fall slightly. The shift towards more savings may arise because the macroeconomics environment is viewed as highly risky financial problems.

US have low personal saving rates that means low growth rate of investment and slow increase on the standard of living. Irrespective of the fact US have faster growth rate in Comparison to other country's economy.

#consumer appear to continue socking away from gains, leading to rise in savings.

Fedral government collected around $3.25 million in the form of taxws, around 60% from income taxes.

1. Raised taxes ln normal income by 1%.

2.Increased taxes on long term capital.

3.Increased corporate taxes.

4. Reduce the federal pension for government employees and military.

5.Reduce disable veteran benefits.

#The Chairman Of FEDERAL RESERVE SAYS-

PERSONAL SAVINGS IN UNITED STATES HAVE PRACTICALLY DISAPPEARED.