AD + Savings

• Savings are a part of disposable income that is not spent on goods and services in the economy and savings are a determinant of A.D as they affect consumption.
• The level of real disposable income can affect the level of saving as higher incomes can lead to increased consumption and savings.
• Interest rates can affect the level of saving as higher rates can encourage more saving and lower rates can encourage more borrowing and spending.
• Consumer confidence can affect the level of saving as individuals are more likely to save in preparation for a recession or if they fear losing their jobs.
• The range and trustworthiness of financial institutions can be a barrier to saving as individuals may not trust or use these institutions.
• Tax incentives like ISAs can encourage more saving as they offer tax-free savings up to a certain threshold.
• An economist called Modigliani argued that the age structure of the population has a significant impact on the level of savings as the middle aged individual is more likely to save for their children and retirement, while those who are younger are more likely to spend.