From my everyday experience and observation I can stand that grades are very good indicators of knowledge. For several reasons that I will mention bellow I believe that grades encourage students to learn.
First of all, grades show students' knowledge. If a person gets a high grade on an exam it means that he understands that subject very well. Otherwise, if a student gets a low grade on an exam it means that he does not understand it completely. Personally, when I get a lower grade on an exam then I expected I know that I could be better prepared. So, next time I will spend more time and efforts to fix my lack of knowledge and do my best on the exam. In this case low grades encourage me to learn more. I try to analyze my mistakes and avoid them next time. Also, I try to arrange my time more effectively. I know exactly that I can do better than that, so I collect all my strength and focus on the incoming exam. It is like a new goal or obstacle that one should overcome in order to continue his path. When finally I get a higher grade on an exam I feel satisfaction and I am proud of myself. I think it is a great feeling. I feel stronger, more self-confident and patient. I think these qualities are essential for a person who wants to achieve something and succeed in the future.
Second of all, students have some kind of competition among each other for higher grades. When a student gets a higher grade then another one, the second student asks himself: "Why do not I have this grade? Is it something wrong with me? Is he better then me? ". I think every student at least one time asked himself this question.
To sup up, I think there is no doubt that grades encourage students to learn, gain more experience, knowledge, be more self-confident and persistent. Moreover, I am sure that these small victories will help students to win and succeed in the future.