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.

BREAKING DOWN '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.

  1. Market Saturation

    When the amount of product provided in a market has been maximized ...
  2. National Savings Rate

    An estimate known as the national savings rate gauges the amount ...
  3. Consumption Smoothing

    Consumption smoothing is an economics framework describing how ...
  4. Savings Rate

    The amount of money, expressed as a percentage or ratio, that ...
  5. Acceleration Principle

    The acceleration principle is an economic concept that draws ...
  6. Crowding Out Effect

    An economic theory arguing that rising public sector spending ...
Related Articles
  1. Investing

    What is the Income Effect?

    In economics, the income effect is the change in the consumption of goods caused by a change in income, whether income goes up or down.
  2. Personal Finance

    How Negative Interest Rates Can Affect Consumers

    Negative interest rates encourage banks to lend but not consumers to spend.
  3. Insights

    What's the Economy?

    The economy is the production and consumption activities that determine how scarce resources are allocated in an area.
  4. Retirement

    Are You Saving Too Much?

    Can experts who advise 'Spend now!' possibly be right about saving too much?
  5. Financial Advisor

    10 Ways to Effectively Save for the Future

    Savings is as crucial as ever, as we deal with life changes and our needs for the future. Here are some essential steps to get started, now.
  6. Insights

    Jobs Beat Forecasts, But "Real" Unemployment Rises

    The "real" unemployment rate, which accounts for discouraged and temporary workers, rose to 9.7% in July from 9.6% the month earlier
  7. Insights

    Why the Stock Market Isn't Affected by Slow GDP Growth

    Learn how the stock market reached new levels in the years following the financial crisis, even though U.S. economic conditions were consistently weak.
  8. Retirement

    Anytime Is The Right Time To Start Saving For Retirement

    If you're looking to start building your nest egg but don't know how to do it, read on. We give you a few easy tips on how to save.
  9. Personal Finance

    4 Savings Accounts for Investors

    Curious about the best saving accounts and which ones suit investors?
  1. How does discretionary income relate to autonomous consumption?

    Learn what differentiates discretionary income from autonomous consumption, how the two relate to each other and what place ... Read Answer >>
  2. What can demographics tell us about present and future consumption trends and economic ...

    Learn what demographics reveals about present and future consumption trends and economic cycles. Demographics is the study ... Read Answer >>
  3. How do changes in interest rates affect the spending habits in the economy?

    Examine the factors that typically determine how consumers react to interest rate changes in terms of increasing their levels ... Read Answer >>
  4. What are key economic growth rates that can be used to determine the economic health ...

    Discover the indicators that correlate with real economic health, and learn why many traditional metrics do not function ... Read Answer >>
  5. How does a high discount rate affect the economy?

    Find out what would happen if the Federal Reserve decided to set a very high discount rate, the rate at which banks can borrow ... Read Answer >>
Hot Definitions
  1. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  2. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  3. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  4. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  5. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  6. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
Trading Center