Question

In: Economics

Which of the following statements is true? A. Extremely high savings rate can be counterproductive for...

Which of the following statements is true?

A. Extremely high savings rate can be counterproductive for an economy in short term.
B. The greater the savings rate in an economy, the slower is the rate of capital accumulation.
C. For positive growth, consumption in an economy should always be less than savings.
D. The greater the consumption expenditure in an economy, the faster is capital accumulation.

Solutions

Expert Solution

The correct option is option (A).

Because:- Savings is an important part of the economy as savings act as a source of funds required for the investment.

But higher rate in savings implies a lower consumption expenditure which translates into lower aggregate demand for goods and services.

This results in lower production and increse in job losses.

Thus an extremely high saving rate can be counterproductive for an economy.

Rahul Sunny answered 2 years ago
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