Question

If the united states experiences lower personal savings rates, then it must be the case that?

Answer 1

If the united states experiences lower personal savings rates, then it must be the case that any increase in domestic investment must be financed by foreign funds.

Because consumer spending accounts for roughly 70% of the US economy, even a small reduction in consumer spending can reduce aggregate demand and economic activity. A falling saving rate, on the other hand, may result in temporarily faster economic growth as people spend a larger portion of their earnings on goods and services.

National savings in the United States have fallen in recent decades as a result of lower private savings rates and higher federal budget deficits. A low national savings rate is especially troubling given the large number of workers retiring now or soon in the United States. With fewer workers able to save and more people drawing down those savings as retirees, government budget deficits are likely to rise further. This reduces the national savings rate even further, harming future economic growth and living standards. Due to low saving rate the US needs to borrow foreign funds for domestic investment.

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