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Do excessive corporate profits hurt the economy?
A lot of times, an increase in profits is seen as a sign of an improving economy. When a company makes net profit (revenue minus expenditures and wages), the company can now use the money to expand.
If a company makes excessive profits and saves the money instead of using it, then could this actually hurt the economy?
Take a look at this diagram.
When consumers save money, they reduce consumption and thus the revenues of businesses. These businesses must then cut back, reducing the wages/number of employees. This means that individuals have less income to spend with.
On the flip side, if multi-billion-dollar corporations decide to sit on their profits and not use the money, wouldn’t this take money out of circulation and reduce the flow of goods?
My whole idea behind this is that the circular flow diagram is pretty much symmetric. “Saving” is when people take in more income than they spend, while “net profit” is when businesses take in more revenue than they spend.