The determinants of savings
Saving means setting aside part of your income rather than spending it. Several factors — including interest rates, confidence, and inflation — determine how much households choose to save.
Formula
Savings ratio = (Savings ÷ Disposable Income) × 100
Real World
During the 2020 UK lockdown, the household savings ratio jumped to over 25% — consumers couldn't spend and feared job losses, demonstrating how reduced confidence and restricted opportunities simultaneously boost saving.
Exam Focus
Remember savings is a withdrawal from the circular flow — examiners expect you to connect higher saving to lower AD and potentially lower output.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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