Investors are least likely to increase their savings rate when: A) Expected rates of returns increase. B)
Uncertainty about their future income increases C) Uncertainty about their future income decreases. The correct answer is C with explanation Investors would increase their savings rate when uncertainty about future income increases and/or expected rates of return increase.
However, the answer I chose was A because when the expected rates of return increase, investors least likely to increase savings but invest to get more returns. And why I didn’t choose C is when uncertainty about future income decrease investors are certain about future income and if they are certain about a higher future income, why would they increase savings rate. Can somebody please explain this. Thanks in advance.
Savings are invested.
Instead of being spent.
Yes, that means the answer can be A as well, correct?
Um . . . no.
If you can earn more by investing then you’re more likely to invest, not less likely.
At least, I would be.
Option A - When the investors’ expected rate of return increase they will go and invest in bonds and stocks. That is they are likely to increase their savings in investment.
Option B - When the investors are uncertain about their future income, they will not invest but save in bank deposits.
Option C - When the investors’ uncertainty about future income decrease, they will be go back to market buy more stocks or bonds.
Where is my mistake? I still don’t get it. Thanks again.
Saving is investing.
They’ll need less for contingencies, so they’ll spend more and save (invest) less.
Thank you very much, understood.
My pleasure.