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Savings Vs Consumption – effect on economy
Long term savings is definitely advantageous to the individual. But what is its effect on economy?
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Long term savings is definitely advantageous to the individual. But what is its effect on economy?
I think it is good for the economy as well.If you put the money in banks, they will use it for loans to other companies.This will spur the economy.Money will keep circulating.I think it is bad only if a miser decides to keep it locked in a bank locker without investing anywhere.
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As Prashanth said, the more the money the banks have, the more effectively it can be used in providing loans for further development, which in turn creates more profit if the loan taking business/venture is well planned and profitable and goes on the create more jobs.
Yes bank lockers usually contain products of black money.
To avoid US like meltdown, tight regulations should be in place to ensure banks dont give away high interest loans those who are unable to pay and that banks always maintain a healthy cash reserve ratio.
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