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Translate from page the passage expanding on the subject of the text.

Does saving stimulate growth or drag it down?

The answer, as for so many ques­tions about economic issues, is "It depends." But on what does "It" depend? It turns out that whether increased desires to save facilitate prosperity or usher in economic collapse depends on why con­sumers want to save more: expec­tations about job prospects or rates of return on investments, or their general sense of where an economy is going.

Suppose deep-seated pessimism about job prospects for family breadwinners is generally matched by bearish (negative) expectations among potential business investors. If widespread economic malaise is the origin of increased desires to save, then the paradox of thrift raises its ugly head, and increased desires to save can push an economy toward the doldrums. On the other hand, suppose in­creased desires to save originate from greater optimism because, say, more people expect to live longer and want big retirement nest eggs to make their golden years of retirement more enjoy­able. Interest rates will fall, and the prospect of servicing longer-term consumer needs (e.g., recreation, retirement communities, and health care) will both redirect and stimulate investment and growth.

Complex considerations link expectations—whether optimistic or pessimistic—with rates of saving and investment, both planned and realized. How optimism or pes­simism affects saving, and, conse­quently, economic growth, de­pends on the sources of people's expectations. Pessimism created by fear of a depression may stimu­late planned saving and make manifest a Keynesian paradox of thrift, driving down both actual saving and actual investment.

But suppose long-range weath­er forecasts of worldwide drought fostered pessimism and fear of famine. Would plans for saving and investment be stimulated or depressed? In this case, increased concerns about survival might stimulate saving for a (non?)-rainy day, accompanied by booming investment in new equipment and seed to help cultivate drought-resistant crops. Thus, this type of pessimism may enhance prospects for economic growth.

Now, suppose that all astron­omers simultaneously predict with 100% probability a collision two years from today between our Earth and an asteroid the size of Mars. The resulting pessimism would probably trigger binges of consumption: Eat, drink, and be merry, for tomorrow you may die. Plans for saving and investment would both be likely to fall to zero shortly after the news was an­nounced. And such plans would invariably be realized.

Now consider a case where people (college students?) live in deprivation but expect some fac­tor not tied to their current income or saving to soon bring prosperity (e.g., getting a great job, winning a lottery, or being lib­erated from dictatorship by the army of a wealthy and generous democracy that will extend aid to your underdeveloped country). In such cases, optimistic expectations may squelch any plans for current saving and investment—in a short time, things will get better because of the external factor.

The point here is that how expectations affect plans for saving and investment is situational. Each set of circumstances requires a careful and case-specific analysis for a sense of the long-run effects on saving and investment, and ultimately, on economic growth. 2761 digits