1. Is Secular Stagnation the cause of Low Growth and Low Inflation? Group number 3 SHUN YI LI

2. What is Secular Stagnation? A condition that there is no growth in a market-based economy. When per capita income stays at relatively high levels, the percentage of savings is likely to start exceeding the percentage of longer-term investments that are necessary to sustain future economic growth. The absence of such investments (and consequently of the economic growth) leads to declining levels of per capita income (and consequently of per capita savings). With the reduced percentage savings rate converging with the reduced investment rate, economic growth comes to a standstill – ie, it stagnates.

3. An example of some countries

4. What is the cause of this situation? Demography. Lower birth rate means there are fewer dependent children, and more cost to society of old people. The workforce is not growing. So, the output per capita is lower. Expectations. People save instead of investing. Economic growth slow down and inflation tumbles. Policy. The central bank can not lower the interest rate to increase the investment because it would make the inflation rate worse.

5. Is Secular Stagnation the cause of Low Growth and Low Inflation?