Should a government encourage people to save more.

Advantages:

More savings can fund investment and enable people to set up a business. This can increase economic growth and can increase living standards.

A government may make use of money in government-run saving schemes e.g. to fund infrastructure projects.

More savings can reduce consumer spending which will lower total (aggregate) demand and this can reduce inflation.

More savings can reduce demand for imports and improve the current account position.

More savings can help people cope for future use such as to prepare for retirement. People can increase spending on education to find new or better jobs. unemployment may be reduced. This will reduce the need for government expenditure e.g. pensions/education enabling the government to spend on other named areas.


Disadvantages:

More savings may reduce output, increase unemployment and cause deflation. More savings will increase deposits at banks and this may encourage them to lend to uncreditworthy customers causing banks to collapse. The price of luxury goods will rise