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# ECON2 Savings ratio Watch

1. Hi,

Im revising for my ECON2 (AQA) exam and was just wondering what the savings ratio is?

It comes up a lot on the MCQs.

Thanks
2. (Original post by bestfriends33)
Hi,

Im revising for my ECON2 (AQA) exam and was just wondering what the savings ratio is?

It comes up a lot on the MCQs.

Thanks
The savings ratio is the % of disposable income that is saved instead of being spent. It affects AD in several ways. If the savings ratio is high then people consume less therefore AD will shift inwards. Also a high savings ratio can affect the amount banks lend, if there is higher savings, financial institutions will have more capital that they can lend to businesses to invest which will increase AD.
If you could post some examples of the multiple choice questions I could try explain further but that should be most of what we need to know for unit 2
If you need to see more check: http://tutor2u.net/economics/revisio...ld-saving.html it explains it way better than I can
3. (Original post by Secret.)
The savings ratio is the % of disposable income that is saved instead of being spent. It affects AD in several ways. If the savings ratio is high then people consume less therefore AD will shift inwards. Also a high savings ratio can affect the amount banks lend, if there is higher savings, financial institutions will have more capital that they can lend to businesses to invest which will increase AD.
If you could post some examples of the multiple choice questions I could try explain further but that should be most of what we need to know for unit 2
If you need to see more check: http://tutor2u.net/economics/revisio...ld-saving.html it explains it way better than I can
Thank you.. it now makes sense So its mainly to do with how much people save.. an increase in the savings ratio means people save more (AD decreases) and a decrease in the savings ratio means people save less (AD increase)?
This is one of the MCQs..
All other things being equal, which one of the following is most likely to lead to an increase in imports? A fall in
A the exchange rate
B national income
C government expenditure
D the savings ratio

4. (Original post by bestfriends33)
Thank you.. it now makes sense So its mainly to do with how much people save.. an increase in the savings ratio means people save more (AD decreases) and a decrease in the savings ratio means people save less (AD increase)?
This is one of the MCQs..
All other things being equal, which one of the following is most likely to lead to an increase in imports? A fall in
A the exchange rate
B national income
C government expenditure
D the savings ratio

The MCQ
If you think about it, people will save less, so consume more and most of consumption in is on imports (shoes, coats etc.) so this will increase imports.
Another way is to eliminate the others:
• (for a) the if the exchange rate falls, the price of imports will increase so there will be less imports - you can rule this one out
• (for b) if national income falls, less people will consume and so less imports - you can rule this one out
• (for c) if government spending decreases, there will be decreased AD, so output will decrease and employment will decrease, disposable income will decrease and so spending, especially on imports, will decrease - you can rule this one out

the quickest way is to read each one carefully and pick the one that you think looks/sounds right, but the safest way is to eliminate, normally eliminating takes a lot less time as you can just realise if national income falls less spending - so it's not that etc., I've just included more detail for your understanding. Hope this helps

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Updated: April 8, 2013
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