Which factor is most likely to cause a household to increase its saving as a proportion of income?

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Question

Which factor is most likely to cause a household to increase its saving as a proportion of income?

Accepted Answer

A rise in the rate of interest offered on savings accounts — A higher interest rate increases the reward for saving, making it more attractive relative to spending, so households save a greater proportion of income. A fall in interest rates (A) reduces the incentive to save. Greater confidence about future income (B) typically encourages more spending, not saving. Cheaper consumer goods (D) may increase real purchasing power but does not directly raise the propensity to save.

Answer

A rise in the rate of interest offered on savings accounts

Answer

A fall in the rate of interest offered by banks

Answer

An increase in household confidence about future income

Answer

A reduction in the price of consumer goods

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