"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
China is expected to lower production rates as people seem to be getting older and the amount of children that people can have in controlled and kept down to 1 per couple. With the population of China decreasing, the amount of workers will also decrease
This could be be because the Chinese viewed all outsiders as barbarians. In Japan taxes increased considerably for both the upper and lower classes. This new tax system helped to fund a national education system. Whereas the Chinese had no such tax increases. This could be due to the fact that they were more reluctant to westernize so they were not trying to fund as many new programs as the Japanese were.
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.
Economic Development: Growth is associated with structural, social change and change in the important institutions of the economy.
There is also potential for friction with the way that risks are handled. In America, we tend to be greater risk-takers than they are in China. American managers often see this as a difference in bravery, but this is not the case. Chinese people are just more likely to avoid decisions whose outcomes are uncertain. They are more methodical and calculated. Sometimes that means a Chinese person would miss an opportunity that could have been taken but he would not see that as such a problem as an American would.
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.
Households in China have tend to save probably more then they need, because they can not rely on social safety nets, such as healthcare and unemployment insurance etc. However, by expending the reach of social protection programmes on a durable basis, government would reduce their own saving and at the same time make for lower precautionary households saving.
The issue also affects the savings function of the citizen badly. Increasing debt reduces the ability of the individual to save for their future. Increasing debt and altered saving functions are the rising concerns in today’s world. Economic experts suggest that the debt payment should go parallel to the emergency and retirement savings. They also point out that having a house with minimal
China is a growing country; its population is about 1.4 billion, and as of 2014, the Chinese economy is the world’s second largest (in terms of nominal GDP,) totaling approximately US$10.380 trillion, with a growth rate of 7.4%, and the GDP per capita is US$3,619.4. From last century to this century, China has had significant improvements in their economic development. China had been in three major crises during the last century: the 20th century. The Fall of Qing Dynasty, World War II, and Civil War in China, all of them struck China in a destructive way. From the end of the 20th century, China was in a fast-developing mode.
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
Since the financial tsunami and the bankruptcy of Lehman’s Brother in September 2008, the world’s economy took a deep plunge and the Chinese economy is no exception. In the wake of the global financial crisis, The Economist (2008) reported that China’s real GDP growth slowed to 9 percent in the third quarter of 2008 and export growth slowed to 21.1%. It was, in fact, well below analyst expectations and recent
Economic growth refers to the rate of increase in the total production of goods and services within an economy. Economic growth increases the productivity capacity of an economy, thereby allowing more wants to be satisfied. A growing economy increases employment opportunities, stimulates business enterprise and innovation. A sustained economic growth is fundamental to any nation wishing to raise its standard of living and provide a greater well being for all. Gross domestic product (GDP) is the monetary value of all final goods and services produced over a year. It is the total value of production within the economy. The total value of production is the total value of the final goods or services less the cost of
Also the consumer behavior in china was very different than in Canada. In china the saving rates per family were much higher than in Canada and Usa. Families were accustomed to save a considerable amount of money for other future issues rather than in electronic products as in Canada and Usa, which are higher consumer societies.
China’s demographic change will constrain the size of the working-age population. A recent study by World Bank indicates that China’s working population is expected to peak in 2010 and decrease thereafter. And also, old-age dependency ratios is expected to almost triple until 2050 (see figure 1 in appendix). Moreover, low urban retirement ages contribute
The prior-saving approach to finance development states that saving is a prerequisite of investment, so the first task is to increase the level of savings to finance investment as this approach believes that savings will readily find investment outlets (Thirlwall, 2003).