Lesson 5, Topic 5
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# Concepts of Savings, Investment and Consumption

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### 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:

MPC  +  MPS  =  1

Thus MPS = 1 – MPC

APS + APC  =  1

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