More Savings, Yet Less Business Finance: Why?
In: Flash Cards
By: Andrea Terzi
If you think that by not spending (i.e., saving) a bigger portion of your income you are thus providing more financial means to business investment, you may be dead wrong! Businesses are better off when you spend more (not less) of your income. Someone’s expense is another’s revenue.
A reduction of expenses will reduce revenues, so more savings reduce business cash flow. Businesses are better off when you spend more (not less) of your income. Paradoxically, you may find that businesses will borrow from you to finance the unsold inventories they are sitting on because you cut your consumption! Everyone’s expense is somebody’s revenue, and a reduction of expenses will reduce revenues, so more savings reduce business cash flow. When businesses need to finance their investments they have no desire that you spend less on their products to lend them (for interest!) the same amount they could receive directly through the cash register.
- Tags: Business, Investment, Revenue, Understanding money
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1 Response to More Savings, Yet Less Business Finance: Why?
Quora
June 7th, 2011 at 00:02
What is your definition of “post-Keynesian Economics”?…
Saving means not spending our entire income. This is what I do for myself, my family, my children. If I had a business I would aim at making a profit (technically, business savings). Saving is a legitimate goal of consumers and producers. In a monetary…