‘As the income increases, people tend to save more’. Justify the given statement.

CBSE Sample Question Paper, Class 12 ECONOMICS Term 2 Question - ‘As the income increases, people tend to save more’. Justify the given statement.

‘As the income increases, people tend to save more’. Justify the given statement.

Answer.
At a lower level of income, a consumer spends a larger proportion of his/her income on consumption expenditure (basic survival requirements). As the income increases, owing to the psychological behavior of a consumer (rational), people tend to consume less and
save more for future uncertainty.