Concepts of Savings, Investment and Consumption

Savings

This is that part of consumer’s income that is not spent on consumption.

Thus:

Y   =    C + S

Where

C   =    Consumption

S   =    Savings

Y   =    Income

Savings are normally used for investment. Thus a country with high savings will have a high investment as well as economic growth, which is the prerequisite for economic development.

Determinants of Savings

1. Level of income

2. Interest rate

3. Availability of rich men and women

4. Level of consumption

Average Propensity to Save (APS)

This is defined as the proportion of consumer’s income devoted to sale.

It is given as: APS = \( \frac {S}{Y} \)

Marginal Propensity to Save (MPS)

This is the change in savings as a result of a change in consumer’s income.

MPS = \( \frac {\Delta S}{\Delta Y} \)

Note The Following: