It is the part of disposable income that is not consumed. Disposable income is part of total income (factor income and transfer payments) left after tax has been paid. It is assumed that whatever is not consumed is saved. Hence savings (s) = Disposable income – Consumption i.e. S = Y = C + S.
DETERMINANT OF SAVINGS
- Level of income
- Prevailing interest rate
- Custom and habit of unit thrift
- To provide for old age emergencies
- The mere urge to accumulate wealth
- To leave estate for one’s children
- To provide for any regular contractual obligation such as rent, i9nsurance premium etc.
AVERAGE PROPENSITY TO SAVE (APS) = S/Y
MARGINAL PROPENSITY TO SAVE (MPS) =
MPS + MPC = 1
i.e. MPS = 1- MPC – 1-b