Answer to Question #106050 in Economics for Shanjay

Question

Discuss whether a government should encourage an increase in savings

Answer 1

Monetary policy seeks to encourage investment by lowering interest rates and to encourage savings by borrowing them. Governments give tax breaks to industries in which it wants to encourage investment. Governments can also make certain types of savings tax exempt if it wishes to encourage savings.Savings and investment are extremely important for economic growth because the amount of economic investment that takes place in an economy is limited to the amount of money available (savings) to fund investment projects. This short-run pain but long-run gain is at the root of economic growth.

So, encourage an increase in savings or not - depends on economic situation, in some cases it may be good, in some - not.