A high savings rate in the economy can lead to Lower interest rate for investments Lower consumption...........

Economic Affairs Money Supply and Monetary Policy

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A high savings rate in the economy can lead to

Lower interest rate for investments
Lower consumption demand leading to a moderation of inflation
Reduced revenue deficit in the public budget

Select the correct answer using the codes below.

1 and 2 only

2 and 3 only

3 only

1, 2 and 3

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Explanation:

Statement 1: Investments in the economy are financed either through private savings, public savings or government investments; all of which require savings by some economic agent. More the saving, more are the funds in the market, and thus based on the supply-demand principle, lower will be the interest rate.

Statement 2: Higher savings mean lower consumption and thus lower inflation.

Statement 3: This has nothing to do with the revenue deficit. However, this might have a relation with the capital side of the budget where government borrowing cost might be reduced due to higher savings.