Forced savings refer to

A. Compulsory deposits imposed on income tax payers

B. Provident fund contribution of private sector employees

C. Reduction of consumption consequent to a rise in prices

D. Taxes on individual income and wealth

Ans. (B) Provident fund contribution of private sector employees

Explanation:

Forced saving is unlike when someone decides to put some of their income into a savings account or other form of investment. There are two things to note. Firstly, the reduction in their present consumption is voluntary – they are happy to exchange present consumption for increased future consumption. Secondly, this will constitute an increase in the supply of loanable funds, and thereby push interest rates down.