According to Keynes, an increase in saving and a decrease in consumption may lower total spending in the economy.  How can this be? .But how can this happen if the increased saving lowers interest rates? wouldn't a decrease in interest rates increase investment spending,thus counteracting the decrease in consumption spending?

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Generally, when consumers save more money and buy fewer items, the economy will slow down due to the decreased demand for products. This could lead to workers being laid off, and the economy may head into a recession. There is no guarantee, however, that increased savings will lead to lower interest rates or will harm the economy. If the economy remains relatively strong, more savings may not necessarily translate into less demand for products. Consumers may still demand the same amount of products while saving the additional income they may have.

The big assumption is that if interest rates drop, consumers may take out loans and buy more products. Also, it is assumed that businesses will also take out loans to expand their businesses. However, if confidence in the economy isn’t strong, there is no guarantee that the demand for loans or for products will increase. Consumers and business owners may feel more comfortable holding onto their money instead of investing or spending it.

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You are right that in normal times all the money that got saved would be snapped up by businesses that wanted to expand.  However, our current situation can give you some idea as to why Keynes did not believe this would always happen.

Right after the late 2008 crash (and even to some extent now) banks were not really willing to lend.  They did not believe they would get their money back.  Similarly, at times businesses are not willing to invest because they do not think there will be enough demand to make it worth it for them to invest in new machinery, for example.

So Keynes thought that demand had to come first.  He did not believe that more money available to borrow would actually lead to more borrowing.

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