Many economists believe that a high rate of business savings in the United States is a necessary precursor to investment, because business savings, as opposed to personal savings, comprise almost three-quarters of the national savings rate, and the national savings rate heavily influences the overall rate of business investment. These economists further postulate that real interest rates-the difference between the rates charged by lenders and the inflation rate-will be low when national savings exceed business investment (creating a savings surplus), and high when national savings fall below the level of business investment (creating a savings deficit). However, during the 1960's real interest rates were often higher when the national savings surplus was large. Counterintuitive behavior also occurred when real interest rates skyrocketed from 2 percent in 1980 to 7 percent in 1982, even though national savings and investments were roughly equal throughout the period. Clearly, real interest rates respond to influences other than the savings/investment nexus. Indeed, real interest rates may themselves influence swings in the savings and investment rates. As real interest rates shot up after 1979, foreign investors poured capital into the United States, the price of domestic goods increased prohibitively abroad, and the price of foreign-made goods became lower in the United States. As a result, domestic economic activity and the ability of businesses to save and invest were restrained.

The passage suggests that the economists mentioned in the highlighted text would have expected which of the following to occur during the 1960's in the United States?

Savings and investment rates to be equal in spite of high real interest rates

Real interest rates to remain low when the national savings surplus was large

Investment rates to remain constant while the national savings rate changed

The national economy to suffer a decline as a result of high national savings rates

Businesses to be encouraged to save due to high real interest rates


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