O Levels Economics (2281)•2281/12/M/J/19

Explanation
Income Primarily Determines Savings Potential
Steps:
- Identify savings as disposable income after expenses and taxes.
- Recognize that higher income increases funds available for saving.
- Evaluate how other factors influence but do not override income's base role.
- Conclude income as the foundational driver based on economic principles.
Why A is correct:
- Savings equals income minus consumption and taxes; higher income directly expands the surplus available for saving, per the basic savings function in economics.
Why the others are wrong:
- B: Taxation reduces disposable income but its impact depends on income level first.
- C: Inflation erodes purchasing power but families with higher income can better counteract it through increased savings.
- D: Bank reliability affects saving security but not the initial amount a family can afford to save.
Final answer: A
Topic: Households
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