Determinants of Gross Domestic Saving in Ethiopia: a Time Series Analysis

People are not being able to save because they are putting their wants in place of their needs. Saving money is one of the hardest things to do. First they need to develop a budget to be in control of where their money is going. One should record their monthly expenses, and any money saved for the month put away for emergencies. Today, people are making more money than ever before and still living paycheck to paycheck. Developing a budget will get one accustomed to living within their means and will open up more money for saving.

The paradox of thrift is a theory that suggests that if people cut spending to increase the amount they save, then aggravate savings will fall because that money not being spent, is also being taken away from someone else’s’ income. Saving is good for the person doing the saving because it creates financial security and allows them to maintain a way of live, but it can hurt the economy. The idea of savings is great, but if everyone started saving their money and not spending any more than necessary, more and more people would be forced out of work.

In Africa for example, savings rates of around 17% of GDP compare to 31% on average for middle income countries. Low savings rates and poorly developed or malfunctioning financial markets make it more expensive for African public and private sectors to get funds for investment as higher borrowing costs impede capital investment. Moreover, in

“The malady of many underdeveloped economies can be diagnosed as a stable equilibrium level of per capita income at or close to subsistence requirements. Only a small percentage, if any, of the economy’s income is directed towards net investment. If the capital stock is accumulating, population is rising at a rate equally fast i.e. thus the amount of capital equipment per worker is not increasing. If economic growth is defined as rising per capita income, these economies are not growing. They are caught in a low-level equilibrium trap.”

In order to discuss the statement in the title, I will first talk about J. M. Keynes and give some general information regarding his life and career. Following I will discuss about Keynes criticism of Say’s Law starting with Aggregate Demand and how consumption together with investment are in relation to income. Afterwards I will highlight the role of investment and what the policy implications are. For the final part of this essay I will conclude with some evidence to support the claims made.

when savings are high, many people will be willing to save, but the banks will hold the money from investing may till the saving rate get low. In my opinion, the United States is not in that situation now because right now the economy is weak. The federal Reserve has the rates about as low as they can go so that once companies start spending and borrowing again, it’s as easy as possible for the banks to lend them money at a very inexpensive rate. The Federal Reserve will help to solve that problem by implementing and directing Monterey policy to create favourable conditions that result increased employment and price stability through management of the money

On the other hand, the reasons for increases of consumer expenditure and investment levels as mentioned above are only all valid if ceteris paribus is assumed. In reality, both factors of aggregate demand can be affected by multiple other external factors for example, consumer expenditure can be affected by the marginal prosperity to consume amongst consumers and therefore if this is very low then a cut in interest will see a minimal change in consumption and investment levels. In terms of consumers and firms if a large cut were to occur it would have a far superior effect in comparison to a small cut which could potentially have no impact. As well as this it can also be affected by the Income Elasticity ofDemand this means the responsiveness of the demand for a good to a change in

In recent years, economists have demoted savings on the economic value chain. Keynesians view savings as detrimental to growth because the act removes money from circulation and decreases spending. Policy makers have made rules that reward spenders and reprimand savers.

Keynes economics theory refers to the concept that optimal economic performance could be achieved. In addition to optimal performance , Keynes believed that economic downfall could be prevented. To attain this outcome , Keynes believed that through activating stabilizers such as taxes, optimal economic performance and prevented downfall in the economy could be achieved. Intervention policies by the government would also be necessary. Keynes theory was considered to be a “demand side” theory. The notion that the reduction in wage rates could be a possible way to restore full employment in an economy was opposed by Keynes. In the Keynesian theory it is stated that employers will not employ additional employees to produce goods or services that do not sell well or are making a loss for the company because demand for such products or services is decreasing. Keynes noted that there may be a reduction in capital investment when prices are reduced as companies may see the market reducing and profits from such a market decreasing , rather than investing in equipment purely because the price of the equipment has dropped. They will take into account the real value of the purchase. This would have a knock on effect on the overall expenditures and employment , resulting in a reduction of overall expenditure and employment. Keynes believed that an increase in aggregate demand for good and services would boost the economic situation of any given

Using the simple Keynesian (J-W) model to assess the implications for equilibrium GDP and the level of savings of an increase in the savings function. What happens to the level of savings? What would happen to equilibrium income if there is a sustained rise in private investment spending?

What defines a nation’s way of life and standard for living depends entirely on its ability to function economically. In addition, the rate at which a country saves is the key to determining its prosperity from a long term perspective. More businesses with more facilities and more equipment equal a greater degree of productivity and greater income for employees. This formula transfers to show greater income for consumers and proves clear relationships between national saving rates and terms in which we measure economic well-being. In addition to the large scale national example, there is also an obvious connection between increased savings and families who

My findings mostly fit with the idea of the Keynesian model. This model develops a theory that would explain determinants of saving, consumption, investment and production. In that theory, the interaction of aggregate demand and aggregate supply determines the level of output and employment in the economy.

Financial improvement is actualizing new innovations, move from farming based to industry-based economy, and general change in living models. The current improvement circumstance of Africa is dumbfounding. Despite the fact that it is the wealthiest mainland as far as common assets, Africa remains the poorest and the slightest created district of the world., Africa is the last worldwide outskirts that will take after the current developing forces. The economy of Africa of China, India and South America Consists of the exchange, business, farming, and human assets of the continent.the report, simply distributed, says this development has been determined basically by enhanced monetary administration on the mainland and the private part.

Among Time magazine’s most important people of the century in 1999, John Maynard Keynes (5 June 1883 - 21 April 1946), was widely considered to be one of the most influential economists of the 20th century and the founder of modern macroeconomics. The magazine stated “his radical idea that governments should spend money they don’t have may have saved capitalism.” In addition to being an economist, Keynes also served the British Civil Service, directed the Bank of England, and was part of the Bloomsbury Group of intellectuals. Fundamentally, his ideas changed the practice and theory of macroeconomics and the economic policies of governments. Many of his ideas are revolutionary, known as Keynesian economics, that can define virtually all economists who came after him.

There is one downfall to the see-saw theory, it couldn’t explain the “Great Depression.” Even though interest rates were down, there was never any increase in investment. Because of this downfall, Keynes looked for the solution and ended up writing The General Theory of Employment, Interest, and Money. In the book he gives his understanding of capitalism, which consists of three major points. The first is that you can never count on people to make investments, because it depends on the enlargement of production. The second is that success depends on whether or not someone uses their savings wisely by investing or putting it into a bank. The last being that there is nothing that can magically always fix a depression. Keynes shows how savings