Private savings impacts investment with people putting money into their savings accounts the bank is able to lend out more money for other people invest in a new business or things they need. So the banks need to have money from others savings accounts to be able to lend money to people that will pay the money back plus some interest. It is important for people to save money in an economy because their saved money helps to keep the economy healthy. Without people saving money the economy could begin to dwindle and this could lead to a depression.
Public policies like tax policies affect saving rates in either good or bad ways which will either encourage people to save or discourage them from saving. An example of a tax policy that will encourage saving is a policy that encourages economic growth that raises revenue without hurting those who are putting their money into savings. A example of a tax policy that discourages savings is such as having to pay double taxes on certain savings accounts such as IRA's. Government budget deficits affect interest rates because when the government spends more money than they make from taxes the country continues to pile up debt. As the debt continues to climb so do the interest rates to provide a better return since the risk continues to climb.
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