Savings Rates by Income Level

Steps:

• Recall that savings rate is the percentage of income saved after consumption.
• Understand that low-income groups prioritize basic needs, consuming most income.
• Note high-income groups have surplus after needs, saving more proportionally.
• Compare options to identify the accurate statement on saving percentages.

Why D is correct:

• In Keynesian economics, the average propensity to consume (APC) falls as income rises, so the saving rate (1 - APC) increases; low-income groups save a smaller percentage due to higher consumption needs.

Why the others are wrong:

• A: High-income groups borrow for investments like mortgages or businesses.
• B: High-income groups save more, not less, due to lower relative consumption needs.
• C: Low-income groups face higher borrowing barriers from lenders due to perceived risk.

Final answer: D