The Economic Determinants

University:
Stanford University
Course:
ECON 1 | Principles of Economics
Academic year:

2024
Views:

246

Pages:

1
Author:

larbi43100

The economic determinants there we find income, inflation, interest rate and taxation. Income: as income rises, savings increase. The interest rate: the higher the interest rate, the more households will be tempted to save, especially in the short term. In the long term, an increase in the interest rate can push households to save less because they will be able to obtain more by investing less. inflation: this factor has ambivalent effects on investment. On the one hand, inflation can push households to save more in order to compensate for the drop in the real value of their cash balances ("real cash balance effect"). But on the other hand it can lead to the effect of "flight from money", in this case the anticipation of inflation by households can lead them to buy now what they will pay more for later and therefore to reduce their savings. Taxation: the State can encourage savings by granting exemptions or Tax credits / Structural determinants: Uncertainty and unemploymentencourage the creation of savings to cope with an increased risk of reduced income. The impact of debt: faced with the size of public deficits, households tend to increase their savings rate in anticipation of future tax increases that the widening public deficits will make necessary. Retirement and social protection: if the establishment of a social protection system and the existence of a pay-as-you-go retirement system have had the effect of reducing the need to save, this is not the case in the economic situation current since the threats weighing on pension assets would push households to save more