Precautionary savings

Households tend to save more during the time of economic turmoil and income uncertainties. Since this can affect aggregate demand in the economy, governments are expected to run larger deficits. The current economic chaos is very different from the usual business cycle slowdown. The contraction is the result of a deliberate shutdown of economic activity to contain the spread of Covid-19, which has resulted in significant hardship for a large number of households. India was anyway witnessing a sharp economic slowdown even before the spread of the virus and its impact was visible in household fi.....

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