Many people say that if people save too much, the economy will be hurt. They often refer to the fact that consumer spending is two-thirds of GDP to make this point. This is sometimes called the “paradox of thrift.”
a. In the Solow model, is there a paradox of thrift? In other words, is a high savings rate good or bad for a country’s long-run economic performance?
b. What about in the real world? According to the data in Figure 28.8, is there a paradox of thrift?