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GDP growth and Average Personal Savings Rate Inversely Related

Chris Surran and Evans Alison

 

Analyzing GDP growth year over year and Average Personal Savings Rate data yields interesting results. In general, GDP and personal savings rate seem to have an inverse relationship. However, GDP seems to take a quarter or two to react to this increase or decrease in personal savings. This relationship is very intuitive. As consumers start to save more money they begin to consume less. Since consumption is a major part of GDP, it makes sense that GDP growth would weaken in a period of increased savings. Conversely, in a period of decreased savings general consumption will increase, which in turn will lead to an increase in total GDP.

 

Since Q1 2016, the Personal Savings Rate has decreased from 5.7% to 2.6%. In the same period, GDP’s year over year growth has grown from 2.52% to 4.12%. This data seems to comply with the inverse relationship discussed above. Furthermore, similar trends can be found throughout the data set.

 

This relationship yields an interesting relationship. What is the optimal personal savings rate?

5 thoughts on “GDP growth and Average Personal Savings Rate Inversely Related

  1. clintong20

    This inverse relationship of savings and the GDP is amazing. I enjoy the inherent sense it makes as it stands as very logical. Increased consumption = Decreased savings. Increased savings = Decreased savings. Is it possible to equalize this relationship?

    Reply
  2. trammellc20

    This inverse relationship is very interesting, especially since it seems logical to save more. There seems to be a gap between what is good for the individual, or saving, and what is good for the economy as a whole, or higher GDP.

    Reply
  3. radcliffec20

    I never thought about the relationship between GDP and personal savings like this before. I wonder how increased savings would affect GDP in the long-run; could the increased savings now lead to increased spendings later? Would this future spending from increased savings be greater than future spending without them?

    Reply
  4. warej20

    Given the factors within GDP, this relationship and reasoning makes sense. As a person I have always valued the caution behind saving, but I now realize that such saving may have negative impacts on our economy. From the data it seems that there is a desirable level of spending as I must spend to contribute to consumer spending and overall GDP. I now realize the effect that I can have and more importantly the cumulative effect we have as a population have with our saving and spending.

    Reply

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