Capital Saturation
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Definition
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An economic state in which real income is high and is expected to continue to rise, causing the general public, corporations and even public entities to focus on consumption rather than savings. Capital saturation is usually associated with low interest rates, which further encourage spending and discourage savings. As a result, capital saturation would lead to an economic upswing as companies spend more money and create jobs.
Breaking Down
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A potential problem with capital saturation and the boom it can produce is that the economy may reach a state of euphoria that is fully dependent on the current conditions of prosperity. If the elevated levels of consumption are reduced for reasons such as an economic shock or an increase in interest rates, firms will be left with excess capacity in their facilities. The shift away from this bubble type of economy may result in an eventual bust.
