Question

According to Gerzema, what happened to savings in the United States, and how did consumers contribute to this change? Describe why you agree or disagree.

a) Increased government spending
b) Decreased consumer spending
c) Shift in investment patterns
d) Changes in taxation policies

Answer 1

In the late 1990s, the U.S. government moved from a budget deficit to a budget surplus. Consumer spending decreased, leading to a change in savings in the United States.

Step-by-step explanation:

In the late 1990s, the U.S. government shifted from a budget deficit to a budget surplus. At the same time, the trade deficit grew substantially. According to the national saving and investment identity, when the government moves from a deficit to a surplus, it means that public saving increases. This increase in public saving is offset by a decrease in private saving, which includes consumer saving.

Consumers contributed to this change in savings by decreasing their spending. When there is economic uncertainty, like in March 2009, people tend to save more and consume less. This is because they are uncertain about their economic future and want to have a financial cushion to fall back on. Therefore, in the late 1990s, the decrease in consumer spending contributed to the change in savings in the United States.