One remarkable thing about U.S. households is how little they save. The U.S. personal savings rate through the first five months of 2007 was negative. This negative savings rate seems to be the product of increased borrowing by poorer households, reduced savings by richer households, and the proliferation of low-wage jobs (which provide incomes too low to enable saving). The flip side of the savings rate is the marginal propensity to consume. Rough estimates suggest that the mpc for the U.S. economy averaged about 90 percent between 1946 and 1990. But between 1991 and 2000, the mpc was 105 percent, and has been even higher since then. People are, on balance, consuming all their income and then some, and are up to their eyeballs in consumer debt.

a. What do these data imply for a multiplier model?

b. What do these data say about what powered the U.S. economy from 2001 to 2008, and should the data have suggested that the expansion was unsustainable? (Radical)