Answer to Question #290310 in Microeconomics for Nkp

Question

if the government wants to encourage people to save more ,would a policy of higher interest rates always achieve this? With the help of indifference curve? 8 marks

Answer 1

if the government wants to encourage people to save more, then a policy of higher interest rates would achieve this, because it would be better to put money into saving account, then to spend or invest. But the interest rates on loans would also increase. The indifference curves can explain, what combinations of money saved or spent are equally possible for consumer (he is indifferent between these two possibilities).