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We know that U.S. households save less than 10% of their disposable income. Using your economic...

We know that U.S. households save less than 10% of their disposable income. Using your economic knowledge, give a  monetary policy recommendation that you think will increase national saving. Elaborate on how it would work. (3-4 sentences will suffice).

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Answer #1

If the federal reserve system tries to restraint aggregate demand through limits on the expansion of credit system, it will definitely influence the level of savings in the economy. Introduction of a restrictive credit policy would raise interest rates which will inturn increase savings. Even if the credit is rationed , to an extent that growth of credit to the private sector is limited, households will be forced to finance investment through other means, including the the curtailment of their consumption, there by increasing their saving rate.

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