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Chapter 21: Problem 15

The Apply the Concept claims that Ebenezer Scrooge promoted economic growth more when he was a miser and saved most of his income than when he reformed and began spending freely. Suppose, though, that after he reformed, he spent most of his income buying food for the Cratchits and other poor families. Many economists believe that there is a close connection between how much very poor people eat and how much they are able to work and how productive they are while working. Does this fact affect the conclusion about whether the pre- reform or postreform Scrooge had a more positive impact on economic growth? Briefly explain.

Short Answer

Expert verified
Both Scrooge's saving and spending can positively impact economic growth, but in different ways. His saving enables greater investment capacity for future growth, whereas his spending on food for the poor increases their productivity, contributing to more immediate increases in economic output. So it's difficult to definitively say whether the pre-reform or post-reform Scrooge had a more positive impact on economic growth without further quantitative information.

Step by step solution

01

Understand the scenarios

Before the reform, Scrooge was a miser and saved most of his income. After the reform, he starts spending most of his income buying food for the Cratchits and other poor families.
02

Analyze Scenario 1

As a miser, Scrooge's savings could be beneficial for the overall economy since savings can be used for investments and can lead to higher economic growth in the long run.
03

Analyze Scenario 2

After the reform, he spends most of his income on food for the poor. This spending, while not being saved or directly invested, does potentially boost productivity of the poor who now have more energy to work. It could lead to a greater supply of labor (because the poor are better fed and therefore can work more) and this could also contribute to economic growth.
04

Compare the two scenarios

The question you need to answer is whether the post-reform scenario (increased spending leading to worker productivity) might have a more positive impact on the economy than the pre-reform scenario (savings accumulating). Bear in mind that both savings (which can be invested and increase capital for future growth) and higher workforce productivity (which can increase output in the immediate term) are important factors for economic growth.

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