Question

The U.S. has been traditionally known as a relatively low saving country, compared to countries like Japan. The U.S. personal saving rate had seldom gone into the double digits since the early 1990s (Source: the Federal Reserve Bank of St. Louis).

In response to the coronavirus pandemic, people inevitably try to save more. We observe that the U.S. savings are rising in an unprecedented manner: the U.S. personal savings rate (personal saving as a percentage of disposable personal income) hit a historic 33% in April 2020.

What are the impacts of a rising savings on the U.S. pandemic-hit economy?

Share your thoughts.

Answer 1

Dear Student,

Please find below answer to your questions

Abstract

US people save a lot of money in recent , In response to the coronavirus pandemic. Saving money in form of fixed deposit or securities fund can make the US citizen to become financially secure and provide a safety net in case of an emergency.

Basically there are three main reasons behind saving money : such as emergency fund, purchases and wealth building.Also when it comes to saving money, the amount you save is determined by how much you have left at the end of the month once all of your spending is done.

Impacts of a rising savings on the U.S. pandemic-hit economy

1) If the U.S. government does not decisively increase spending, higher American household savings will force either American debt or unemployment to rise even more.

2) Americans are slashing their spending, hoarding cash and shrinking their credit card debt as they fear their jobs could disappear.

3) If some American households decide to save more, the country’s overall savings rate will not rise unless some other (unlikely) adjustments or tradeoffs elsewhere in the economy allow that to happen.

4) A higher household savings rate could be accommodated by a decline in the American current account deficit,

5) A higher household savings rate could result in an increase in U.S. investment.

For Example,United States were a developing economy with high investment needs constrained by scarce and expensive capital, an increase in domestic household savings rates could certainly result in higher investment.

6) A higher household savings rate could result in negative saving elsewhere, so that the total savings rate would not rise.

For Example, Falling household consumption—perhaps exacerbated by a decline in business investment and a wider current account deficit—might cause American businesses to lay off workers.

7) Boosting government spending

Governments could implement policies that create consumption on behalf of households by, for example, increasing healthcare benefits, paying for education, and otherwise strengthening the social safety net.

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