Archive - April 29, 2009

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The Savings Paradox

The Savings Paradox

Let’s take a moment to review a theory proposed by John Maynard Keynes almost 100 years ago. Everyone would agree that it is beneficial for an individual to save money. However, what happens when a society saves too much? The savings paradox suggests that when society as a whole does not spend money less goods are consumed, leading to businesses being less profitable. Consequently, wages are lowered and jobs are lost, causing people to have less money and to be able to afford to save less. Thus, if an entire population saved more, our total savings rate would stay steady …

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