Question from Past Macroeconomics Qualifying Exam (Fall, 2004 - Question two) at George Mason University[]
Many economists argue that consumption spending is good for the economy because it stimulates economic activity and creates jobs. On the other hand, macroeconomists often argue that saving should be encouraged because higher saving leads to more investment and, consequently, to higher rates of economic growth.
- a. Do these two arguments offer contradictory advice, or can they both be simultaneously valid and correct? Carefully explain.
- b. What kind of economic policy should be implemented to achieve higher levels of economic activity through consumption spending?
- c. What kind of economic policy should be implemented to stimulate higher rates of economic growth through higher saving rates?
- d. Assuming that policy-makers would like to achieve both policy objectives (i.e., a high level of economic activity and sustained high rates of economic growth) what advice would you offer?
Answer[]
- (a)
- (b)
- (c)
- (d)
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