Savings decisions driven by future planning

Steps:

• Identify factors affecting savings: income, interest rates, taxes, and personal goals.
• Evaluate each option's impact on saving incentives.
• Compare to standard economic models like life-cycle hypothesis.
• Select the option that directly boosts savings motivation.

Why A is correct:

• According to the life-cycle hypothesis, planning for retirement increases savings to build future wealth for consumption smoothing.

Why the others are wrong:

• B: A fall in income reduces disposable income, typically decreasing savings.
• C: A fall in interest rates lowers the return on savings, discouraging saving.
• D: A reduction in tax-free schemes increases the tax burden on savings, making it less attractive.

Final answer: A