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92-handout - Economics of Saving November 2009 Defining and...

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Economics of Saving November 2009
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Defining and measuring saving Saving is deferred consumption It is a decision to substitute future for current consumption Disposable income (Yd) can be spent or saved Yd = C+S S= Yd-C Savings ratio – savings as a % of disposable income Changes in savings behaviour have big effects on AD
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Motivations for saving Incentives (e.g. If real interest rate is positive) Providing for retirement Economic uncertainty Saving for major purchases of durables Saving for a mortgage deposit Saving to repay existing debts Desire to give bequests Expectations of future falls in the price level
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Rates of Return on Savings Have Collapsed
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But there has a been a sharp rise in the savings ratio
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Falling property prices will have hit confidence
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And rising unemployment prompts spending cuts
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The borrowing boom represented ‘dis-saving’
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Many households now cutting back
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Importance of saving for the economy
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This note was uploaded on 02/08/2012 for the course FIN FIN4345 taught by Professor Koij during the Spring '10 term at FIU.

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92-handout - Economics of Saving November 2009 Defining and...

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