The concept of saving is closely connected with the concept of consumption. The excess of income over consumption is saving. In other words saving is the income which is null consumed. Thus saving is defined as the excess of income over consumption expenditure S= Y-C. Saving function is the opposite BH of consumption function of income. According to Keynes saving is a function of income i.e. S= f(Y). Saving depends on the propensity to save which can be derived from the propensity to consume given the consumption function, saving function can be cud derived.

Saving function is a schedule showing various amounts of saving corresponding to different levels of income. Saving curve Can be easily derived from a given consumption serve as shown in the diagram 1 given below.

The 45° guide line represents Y=C which indicates income=consumption or zero saving at all points of the line. ABC is the consumption function which can. Be stated as

C=a+b(y) Where C= Total consumption expenditure


a= Autonomous consumption or portion of income Consumed when income is zero.

b= Marginal propensity to consume (MPC) C=a+b(y) is a linear consumption function curve.

If a = 20cores, b=0.8 and y= 200, then total Consumption expenditure at Rs 200 cores income level is C= a+b(y) – 20+Q.8 (200) = Rs 180 crores. DYS is saving function which can be stated as S= -a+ (l- This equation has been derived from consumption function. S=Y-C S=Y- (a+b(y)} S=Y- a- b(y) S=Y-a+y-b(y) S= *-a+ (l-b) y

By putting the above values wage -20+ (l-0.8)200= 20crores. In the diagram 1, the saving curve DYS shown the gap between consumption curve ABC and the income line (45® line), to the income level OY consumption exceeds income. This means there is disserving. Beyond income level OY. There” is positive saving. Positive saving is measured by the gap between 45° guide line and consumption curve.


At zero income level consumption is OA. OA is called autonomous consumption. At autonomous consumption saving is negative. An OY level of income, the whole of income is consumed and nothing is saved. Thus saving is zero. By joining D and Y and extending it to the points, we get DYS which is the saving function.

Average Propensity to save and Marginal Propensity to save:-

1. A.P.S The average propensity to save refers to the ratio of total saving to a given level of total income. Symbolically



APS = S/Y—————————-

(Disposable) Income

There is an important relationship between average propensity to consume and average propensity to save. APC + APS = 1. This equation can be divided as follow.

2. MPS:-


The marginal propensity to save is the opposite of MPC. Marginal propensity is expressed as the ratio of small change in saving to a small change in income. It is found by dividing change in saving by change in income. Symbolically it AS/AY. If for example income increases from 300 to 350, a saving increases from Rs.40 to Rs.50 then MPS = 10/50 = 0. Or 20%.

Since saving is the excess of income OVC consumption and a change in saving is equal to change in income minus a change in consumption, marginal propensity to save will be equal to on Mino marginal propensity to save. The derivation is as follows.