Summary Of Paul Krugman's When Consumers Capitulate
564 Words3 Pages
Catherine Perez
Mona Ali
ECO207_02
30 March 2015 When Consumers Capitulate by Paul Krugman
One of the biggest economics questions is whether to save or spend. New York Times columnist Paul Krugman discusses the paradox of thrift on savings and how the ineffective methods of the government has not helped increase Gross Domestic Product. When consumers anticipate an economic crisis, they are more likely to save their money if they believe that there will be a decrease in income. However, spending and consuming are great for the economy. What consumers do not realize is that as more individuals save, the worse the economy becomes. Low consumption results in companies not being able to earn their projected income and having to cut down on employees and increasing unemployment rates. Krugman views savings as an individual virtue and a public vice. Saving is seen as an individual virtue if one saves with the hope of prospering in the long run. This is a public vice because everyone is saving is harming the circular flow of money. In regards of the economy, it is better tho spend than save.…show more content… Through the expenditures approach of calculating GDP, there is an inflow of consumption, investment, government purchases, and exports, and an outflow of imports. To maintain a prosperous economy, there must be high inflows. Consumption counts for the majority of inflow. Saving is a leakage because consumers are not spending which harms GDP. From an expenditures point of view, GDP mostly rises with the increase of consumption and investment. Consumption leads to greater income and jobs. Greater income results in spending, which allows companies to keep