important reason that the economy’s supply of saving continues to
increase.
- Population Growth
An increase in the population—either through higher birth rates or
greater immigration—leads to an increase in the supply of financial
capital. The simple reason is that most households save, and so an
increase in the number of households leads to an increase in the total
amount of desired saving.
- Policies to Increase Desired Saving
Some Canadian government policies may increase households’ desired
saving. Registered Retirement Savings Plans (RRSPs) and Tax-Free
Savings Accounts (TFSAs), for example, offer tax benefits to households
who contribute to special “registered” savings accounts.
Increases in Investment Demand
Anything that increases firms’ desired investment at the given interest rate
will shift the investment demand curve to the right. At the initial interest
rate, this increase in the need for financial capital will lead to an excess
demand for capital and thus to a rise in the equilibrium interest rate. As
the equilibrium interest rate increases, households will find it desirable to
reduce their current spending and increase their saving. The rightward
shift in the investment demand curve will therefore lead to a movement
upward along the saving supply curve. This case is illustrated in part (ii)