Sample Essay

Fiscal policy refers to the use of government revenue collected and its expenditure to influence economic performance. The fiscal policy can combine both government expenditure and taxation or it can use them separately. The best way to influence an increase in savings using the fiscal policy would be to reduce taxation. This means that the value of disposable income will increase and the public to increase savings can use the excess funds.The monetary policy involves the use of interest rates and money supply to cause economy wide changes. To increase or boost savings the government may choose to either increase interest rates or reduce money supply within the economy.

In any economy, the role of financial institutions like banks and Forex exchange bureaus is very crucial to economic performance. In the case above, the level of regulation and liberalization of the financial sector will determine whether the policy will work or not. This is due to the process of the flow of international capital. If the government decides to increase interest rates the flow of international capital to tap the profits might hamper the government’s plan to increase savings since the increased liquidity will drive down the interest rates.