Theory of Saving

Saving Theory Assignment Help

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Theory of Saving

Saving function relates the amount of saving to the level of income.

Saving curve is a geometrical presentation of the saving income relationship. Show the amount of saving on (Y-axis) at various income levels (measured on the X-axis).

Average Propensity to save (APS) is the ratio of total saving to total income written as APS = S/Y where S is the total saving and Y is total income.

Marginal Propensity to save (MPS) is the ratio of change (increase or decrease)of saving to change in income or MPS = ΔS / ΔY.

Sum of APC and APS is equal to unity or 1.

Therefore, APS = 1- APC

Similarly, sum of MPC and MPS = 1.Therefore, MPS = 1 – MPC or s = (1-b) where s is the MPS and b is the MPC.

The saving equation is given by S = -a + (1-b)Y.
= -a/ Y + S.


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