Saving and AD

• What is saving in the context of disposable income?

  Saving is that part of disposable income that is not spent on goods and services.
• How does an increase in savings affect consumption in the economy?

  An increase in savings leads to less consumption taking place in the economy.
• What happens to the aggregate demand (AD) curve when savings increase?

  The AD curve will shift to the left when savings increase.
• What are the two things an individual can do with their income?

  An individual can either spend it or save it.
• Why is the level of real disposable income a key determinant of saving?

  Because without income, individuals cannot save.
• How does an increase in income affect both consumption and saving?

  An increase in income can lead to both increased consumption and increased saving.
• What is the impact of higher interest rates on saving?

  Higher interest rates encourage more saving due to increased rates of return.
• What effect do low interest rates have on saving and spending?

  Low interest rates encourage more borrowing and spending, leading to less saving.
• How does consumer confidence influence saving behavior?

  Low consumer confidence encourages more saving and less spending.
• What role do financial institutions play in saving in developing countries?

  The poor range and trustworthiness of financial institutions can reduce the incentive to save in developing countries.
• What is a barrier to saving in developing countries related to education?

  Lack of knowledge about the benefits of saving and how banks operate can be a barrier to saving.
• What are tax incentives like ISAs designed to do?

  They are designed to encourage more saving by providing tax-free returns on savings.
• How does the age structure of the population affect saving according to Modigliani?

  The middle-aged population is more likely to save for their children and retirement.
• What are the key determinants of saving in the economy?

  • Level of real disposable income
  • Interest rates
  • Consumer confidence
  • Range and trustworthiness of financial institutions
  • Education about saving
  • Tax incentives like ISAs
  • Age structure of the population
• What happens to the level of savings if the majority of the population is middle-aged?

  If the majority of the population is middle-aged, the likelihood of savings rising increases.