Question

How and why can the decision of U.S. citizens
to save money cause economic
problems for the economy? So, if the economy
is in a recession, who is
at fault: business, households, or governments

please answer it by typing

Answer 1

Spending or consumption is regarded as key factor that drive economic growth in developed countries. Fall in consumption means there is fall in expenditure so the fall in output is witnessed.

If consumers increase their saving, they would be inclined to reduce their consumption, So recession can be induced by such process. This is paradox of thrift.

If there is fall in the consumption, there would not be rise in investment by private business houses.

Consumer tends to increase saving to make future more secure while businesses reduce investment if profits are low.

Thus these two entities can not be held responsible for such behavior. Similarly, government to some extend can be held responsible if it does not provide stable political environment for investment and consumption. But still government also might be fully responsible.

But government can play important role in this situation by filling gaps created by the household and businesses.