what would happen to the circular flow of our economic system if consumers began saving large percentages?

Question

large percentages of their income

Answer 1

In more advanced economics courses, you'll likely learn the Solow growth model and the effect that savings has on this.

To summarize:

Medium to somewhat high savings rates can have a positive effect on long-term growth (short term, the economy would likely suffer somewhat as aggregate demand shifts to the left).

Like anything else, however, there are marginal returns to savings as well. Very high savings rates can cripple an economy because if no one is buying anything in the short term, there is no incentive for long term growth by companies.

Answer 2

Well, it depends on how they saved it. If they stuffed it in mattresses or buried it in their back yards then with less money in circulation you would have a depression where the purchasing power of each dollar would increase.

If they put it in the bank the money stays in the economy and would be invested in operating businesses and financing business expansion and increased capitalization. This would make it easier to start new businsesses and expand existing business.

Don't know what you mean by circular flow. Sounds like a zero sum model.

Answer 3

Basically, the flow of money for goods in the product market would reduce, followed by a reduction in the amount of capital (in the input market) that firms want.
There would be a net reduction in the magnitude of the flows.

In a real economy, the increase in savings would lower the interest rate (because so much money is available to borrow, since no one is spending). The lower interest rate will make saving less attractive, so things would balance out.

Answer 4

not sure

if everybody spent like id o the economy would collapse

except for Whole foods
and fast food places
and the thrift store
microcenter
gas stations
cheap restaurants
Blanchards
Mall discount liquors

Answer 5

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