How does a reduction in consumer spending in favour of consumer saving, affect economic activity?

Question

Let's say our government runs an advertising campaign, encouraging its citizens to reduce spending money on consumer items, and instead save more money. Let's say the campaign is successful, and that happens.How does this affect economic activity? On one hand the factory and shop owners appear to produce less, and thus hire less people, but on the otherhand, there is more money available to build new factories etc.

Answer 1

You are right in that reducing consumption will reduce demand and output. Firms will be laying off people not building new factories in the short run