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There has been a sharp increase in the rate of savings in Ireland in the past year - Leaving Cert Economics - Question e - 2010
Question e
There has been a sharp increase in the rate of savings in Ireland in the past year. (i) Discuss two factors currently influencing the rate of savings in the Irish e... show full transcript
Worked Solution & Example Answer:There has been a sharp increase in the rate of savings in Ireland in the past year - Leaving Cert Economics - Question e - 2010
Step 1
Discuss two factors currently influencing the rate of savings in the Irish economy.
Answer
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Future Expectations for the Economy: Current economic uncertainty influences consumer confidence. As people anticipate potential economic downturns, they are more inclined to postpone purchases and save more.
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Security of Savings: Due to the volatile economic climate, individuals are prioritizing secure saving methods over riskier investments. This shift is driving a preference for stable savings accounts and products like state-backed savings bonds.
Step 2
Outline three economic effects which an increase in the rate of savings may have on the Irish economy.
Answer
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Reduced Spending within the Economy: With higher savings, consumer spending declines, leading to a lower demand for goods and services and potentially resulting in reduced employment opportunities.
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Increased Unemployment: A decrease in demand for goods may force companies to cut back on hiring or lay off existing workers due to lower sales volumes, contributing to a rise in unemployment.
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More Funds Available for Investment: Increased savings mean that financial institutions have more capital to lend out, which can generate more investments by businesses. This growth in investment can stimulate economic activity over time.