GK
BUSINESS ECONOMICS
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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What happens as a person’s or economy’s income rises?
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They spend less
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They spend proportionately more
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They save proportionately more
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They save proportionately less
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Explanation:
Detailed explanation-1: -Interest rates – higher interest rates make saving more attractive. Economic growth – high growth and high consumer confidence encourage relatively higher spending and a fall in the savings ratio. The age of individuals – People in their 40s and 50s tend to save for retirement. Old people run savings down.
Detailed explanation-2: -If income goes up then consumption will go up and savings will go up. Consider the graph below, which shows Consumption as a positive function of Income: Notice the use of the 45˚ degree line to illustrate the point at which income is equal to consumption.
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