Capital Saturation

AAA

DEFINITION of 'Capital Saturation '

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.

INVESTOPEDIA EXPLAINS 'Capital Saturation '

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.

RELATED TERMS
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects ...
  2. Savings Rate

    The amount of money, expressed as a percentage or ratio, that ...
  3. Paradox Of Thrift

    The notion that individual savings rather than spending can worsen ...
  4. National Savings Rate

    An estimate from the U.S. Commerce Department's Bureau of Economic ...
  5. Bureau of Economic Analysis - BEA

    A division of the U.S. federal government's Department of Commerce ...
  6. Consumption Function

    The consumption function is a mathematical formula laid out by ...
Related Articles
  1. Cashing In On The Venture Capital Cycle
    Fundamental Analysis

    Cashing In On The Venture Capital Cycle

  2. Adapt To A Bear Market
    Investing Basics

    Adapt To A Bear Market

  3. An Introduction To Behavioral Finance
    Active Trading Fundamentals

    An Introduction To Behavioral Finance

  4. How The Power Of The Masses Drives The ...
    Active Trading Fundamentals

    How The Power Of The Masses Drives The ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center