Americans Saving More, Spending Modestly

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nHigher savings has a significant effect on long-term and short-term growth of the economy. Therefore, without proper mechanism to regulate consumer saving and spending, the government may increase the taxes in order to revive the economy. The saving rate in United States is 6.9 percent as compared to zero percent in 2008. The economic stimulus program that the government initiated to fight recession has led to reduction in taxes in payments (NBC NEWS.com, 2009). Following recession, most Americans are spending less relative to their savings. This is because savings and investments contribute growth in economy.

nHigher rate of savings raise the capital stock in long-term. Therefore, it raises the full-employment of national product and income. As the national product and income continues to raise, the rate of national product and income increases. Long-term growth is shown by increase in potential GDP (Pindyck, & Rubinfeld, 2011).

nHowever, in short term, higher rate of saving does not influence the increase in the rate of growth of national product and income. Short-term growth is determined by annual percentage change in national output. In most cases, higher rate of savings leads to lower rate of GDP growth in the short-term (Pindyck, & Rubinfeld, 2011).

nThe components of the economy are consumers, market, firms and government. Consumers comprise of individual consumers and businesses. Consumers sell their labor to firms in exchange of wages. Business firms produce goods and services that they supply to governments and consumers (Pindyck, & Rubinfeld, 2011). In addition, market brings together the seller and buyer of goods and services. Therefore, it creates economic activities that benefit the seller and buyers. Government has a crucial role in the economy since it develops policies that affect the economy (Pindyck, & Rubinfeld, 2011). It also provides goods and services such as protection of law enforcement and national security.

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nNBC NEWS.com,. (2009). Americans saving more, spending modestly. msnbc.com. Retrieved 19 August 2014, from http://www.nbcnews.com/id/31564909/ns/business-stocks_and_economy/#.U_MX06OubIV

nPindyck, R., & Rubinfeld, D. (2011). Microeconomics (1st ed.). Upper Saddle River, N.J.: Pearson Prentice Hall.