question archive Questions 1) Do you agree or not with the statement of - "In the times of economic hardships & uncertainties, people should spend less and save more(decrease their consumtion and increase their savings, if it is possible)" ?
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Questions 1) Do you agree or not with the statement of - "In the times of economic hardships & uncertainties, people should spend less and save more(decrease their consumtion and increase their savings, if it is possible)" ?
Questions 1: Do you agree or not with the statement of - "In the times of economic hardships & uncertainties, people should spend less and save more(decrease their consumption and increase their savings, if it is possible)" ?
Answer: I disagree. During times of economic hardships and uncertainties, a decrease in consumption will reduce the level of economic growth in the economy which will drive the economy to more hardships and uncertainties. Instead, citizens should save less and spend more as this will help in economic recovery.
Step-by-step explanation
Answer: I disagree. During times of economic hardships and uncertainties, a decrease in consumption will reduce the level of economic growth in the economy which will drive the economy to more hardships and uncertainties. Instead, citizens should save less and spend more as this will help in economic recovery.
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Explanation
During times of economic hardships and uncertainties, people engage in precautionary saving. Precautionary saving involves delaying consumption and increasing the savings due to future uncertainties on income. A decrease in consumption reduces the aggregate demand which in turn slows down the economic growth rate (Mody, Ohnsorge, & Sandri, 2012). Due to low consumption rates, businesses will experience a reduction in purchases which may force businesses to shut down and an increase in the unemployment rate in the economy. This situation will result to more and more economic hardships which would drive the economy to a recession. The situation will also slow down the recovery process as opposed to if the people saved less and consumed more. On the other hand, the interest rates earned from savings will reduce due to an overwhelming increase in savings which is not accompanied by an increase in borrowings. Therefore, during periods of economic hardships and uncertainties, people should be encouraged to spend more and save less to boost economic growth and aid in economic recovery.