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9/11 was one of the first major terrorist attacks on the US soil. Since then, there...

9/11 was one of the first major terrorist attacks on the US soil. Since then, there have been several terrorist attacks in which many people lost their lives. People realize there is a good possibility that people can lose their lives earlier than expected. How does it affect their savings decisions and the economy? Briefly discuss.

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I think when people have an expectations that they can die earlier than expected, they reduce savings and they tend to spend more. So, this can increase the aggregate demand to an extent and lower savings. Such an increase in aggregate demand can increase the demand for loanable funds and fall in savings can reduce the supply of loanable funds. So, the interest rates can go up.

Also, an increase in aggregate demand can increase output and employment.

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