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The Effect of Savings Rate in Canada

In: Social Issues

Submitted By Simonann25
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THE EFFECT OF SAVINGS RATE IN CANADA
The impact of savings rate in an economic has become a very conflicting issue in research and among economist all over the world. This may be due to the importance of savings generally to the economic growth and development of any nation. However, the structure of every economy cannot be generalised by a particular economics’ variation because various countries have different social security and pension schemes, and different tax systems, all of which have an effect on disposable income. In addition, the age of a country’s population, the availability and ease of credit, the overall wealth, and cultural and social factors within a country all affect savings rates within a particular country. Therefore, this paper seeks to find the effect of savings in the Canadian economy.
Household saving is defined as the difference between a household’s disposable incomes mainly wages received, revenue of the self-employed and net property income and its consumption (expenditures on goods and services). The household savings rate is calculated by dividing household savings by household disposable income. A negative savings rate indicates that a household spends more than it receives as regular income and finances some of the expenditure through credit (increasing debt), through gains arising from the sale of assets (financial or non-financial), or by running down cash and deposits. Since the early-to-mid-1990s, savings rates have been stable in some countries but have declined in others - in some cases sharply, including in Australia, Canada, Japan, Hungary, South Korea, the United Kingdom and the United States.
The Harrod-Domar (Domar, 1946 and Harrod, 1939) growth model suggests that the rate of growth in an economy is induced by availability of capital stock. They identified rate of savings to be the major source of growth in an...

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