Consumer saving and borrowing tends to follow the ups and downs of the business cycle, as households tend to use borrowing and saving as devices to smooth out consumer spending over the course of the business cycle.

Question

Quizplus · Accepted Answer

During economic expansions, consumers are more likely to borrow due to increased confidence and income, leading to higher spending. Conversely, in downturns, consumers tend to save more as a precaution against economic uncertainty, attempting to maintain a level of consumption despite fluctuations in income. This behavior reflects an effort to smooth out consumption over the business cycle.

Consumer Saving and Borrowing Tends to Follow the Ups and Downs