High Saving Promotes Faster Growth

Better Essays

"High saving promotes faster growth. So having more savers in the global economy should be good for our long run prosperity." Long-term economic growth is the expansion of the productive potential of an economy. Therefore, to ensure such growth, aggregate supply must continually shift outwards as shown in the diagram below. Figure 1: Long-term economic growth The diagram shows aggregate supply shifting outwards from AS1 to AS2 and consequently the price level falls from P1 to P2 and real gross domestic product rises from Y1 to Y2. Saving refers to the income of a household, firm or government that is not spent but set aside for future consumption or investment. It is vital to an economy because it provides finance for capital …show more content…

A particularly interesting comparison is household saving and corporate investment between and the United States. Household saving as a percentage of household disposable income is shown in Figure 3 below. There is a clear difference, with China having a continually higher level of household saving in comparison to the United States. Figure 3: OECD (2015), Household savings (indicator). doi: 10.1787/cfc6f499-en (Accessed on 20 June 2015) In China, household saving has been substantially higher than in the US. The average household saving (as a percentage of household disposable income) between 2000 and 2010 was 35.97% whilst in contract, in the United States; this figure was just 4.55%. This is due to several reasons, such as the absence of a welfare system in China. Since households cannot fall back on a state-provided safety net (like what is found in the United States and United Kingdom), households feel more vulnerable and therefore are more inclined to save. In addition, in the United States, borrowing is easier as the personal finance industry is more developed. Hence, households in the United States can buy goods such as property and cars with only a deposit. Conversely, in China, to buy such assets, households need to save up either the whole amount or a large

Get Access