Purchase Solution

Household vs Economy: Importance of Saving

Not what you're looking for?

Ask Custom Question

How important is saving for a household and the economy? How much should be saved?

I need at least 300 words and at least 2 citations (references) do not use wikipedia, this is MBA level.

Purchase this Solution
Solution Summary

This response provides a discussion of how and why savings occurs within the economy, as well as the impact of savings accounts on the finance industry, and banks in particular. It also provides an understanding of why there should be a minimum level of savings, instead of a total investment mentality.

Solution Preview

The short answer is that savings is extremely important for not only households, but for businesses, institutions, and any form of model requiring financial backing. Here is how it breaks down:

The principle involved is time value of money. If we proceed to save (essentially pay ourselves as though we were an expense or a debt), then we engage the principle of future value. Future value states that money earns money on the money saved and invested (even if we are simply investing in a savings account with our local bank). The benefit to the saver is that the money being saved and invested earns additional money through the payment of interest and/or dividends to the saver. The result, for example, is that $1.00 saved and invested at 10% for 10 years is worth approximately $2.64 at the end of the 10 year period --- which means that our savings have grown approximately 260% simply by allowing it to be used within the economy for other investment opportunities. (Now if we continue paying into an account which allows this to grow, keep in mind that our long term return will grow exponentially due to ...

Purchase this Solution
Free BrainMass Quizzes
Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • Equity vs. Growth

    The major source of capital in most countries is domestic saving, but the goal of stimulating domestic saving usually is in conflict with government policies aimed at reducing inequality in the distribution of income.

  • recession

    The household either will spend this supplementary revenue or keep it in a saving because they will have to pay it back later.

  • Principal and Interest

    115611 Principal and Interest The Board of Governors at the Federal Reserve Bank set the prime interest rate. These rates trickle down through the economy at various rates and affect consumer spending and saving habits.

  • Full employment after a recession

    The household sector spends part and saves part of this income. The division between consumption and saving is based on the marginal propensities to consume and save.

  • Evaluating political actions

    The level of debts in the economy also increased.

  • Show from national income accounting that A. An increase in

    [For both B and C assume that there are no interest payments by household or transfer payments to foreigners)

  • Complications resulting from expansionary fiscal policy

    The household sector spends part and saves part of this income. The division between consumption and saving is based on the marginal propensities to consume and save.

  • Investing vs. saving, primary and secondary markets, net worth, income statements, and taxes.

    264113 Investing vs. saving, primary and secondary markets, net worth, income statements, and taxes. Please see attachment. 1. Explain the difference between investing and saving. 2. List, and explain, three motivations for investing. 3.

  • Impact of the Federal Funds Rate on Saving vs. Investing

    585508 Impact of the Federal Funds Rate on Saving vs. Investing Investors should save when interest prices go up. Do you think most smart investors are doing this? Do you think our interest rates currently, at the national level, are reasonable?

View More Related Solutions