Private saving impacts investment by essentially funding it. If somebody earns more money than they spend and they then chose to place their unspent income in the bank, for example, then that individual is saving that money. The person who then asks the bank for a loan to start a business is investing that money, and that investment was therefore funded by the 1st individual’s private saving. It is important for individuals to do this in an economy because the nation’s investment has to be backed by the nation’s saving, meaning if there are people who want to start a business, then there better be others who want to save and lend out.
Public policies such as tax policies discourage saving because this means the person saving has to pay taxes on their interest and dividend income, which leaves them with less than they would originally have without these policies.
Government budget deficits mean that the government spent more than it collected. What this does to the interest rate is make it rise because it has to be equal to investment, and if the nation’s saving is lower than the nation’s investment than financial markets must raise interest rates to lower investment. This brings them back to a balance, even if they are both now at a lower rate.
Crowding out is when investment is decreased due to government borrowing. Basically, both investment and savings decrease, and the only thing that increases is the interest rates. I believe it is a problem because, as discussed in the article cited below, GDP is decreased when crowding out occurs, and that means people get paid less and there will be less opportunity within that economy.
Mitchell, Matthew D., and Jakina R. Debnam. “In the Long Run, We’re All Crowded Out.” Mercatus Center, 15 Sept. 2019, http://www.mercatus.org/publications/regulation/long-run-we%E2%80%99re-all-crowded-out.
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