Talking Points for Economics

1. If general saving increases due to general increase in our national income, then that would be healthy, but if saving increases due to a cut in general consumption, then that would hurt our GDP.

2. Cutting consumption would lead to cut production, which means the economy enters the period of recession, and this will lead to layoff workers and cut our national income which will result in cutting saving too.

3. There are three types of investment spending. Business fixed investment includes the equipment and structures that businesses buy to use in production. Residential investment includes the new housing that people buy to live in and that landlords buy to rent out. Inventory investment includes those goods that businesses put aside in storage, including materials and supplies, work in process, and finished goods. Based on our economic history, all three types of investment fall substantially during recessions.

4. According to Keynes, if all people started to save much more and cut consumption, the GDP will decline and our saving will decline too. Keynes called this as a paradox of thrift. Imagine if all people decide to cut consumption by 10% to save more, the impact of that major decrease in our consumption will drop the GDP by 7.2%( assuming that our consumption is 72% of the GDP). From Keynesian point of view, to increase saving we all need to spend more and more to increase our national income, and as a result of that our saving will be higher.

5. From the classical point of view, saving should equal investment, and then having high saving would boost investment and the GDP as whole. The classical theory (which stresses on NO government intervention and leave the market takes care of any problem, because the market has the self-correcting mechanism) is based on the following assumptions:

GDP = C + I + G + X - M

Y( National Income) = C + S + T ( when S is saving and T is taxes).

Gross Domestic Product is equal to National...