Saving Function
1 Quick Explanation 1–3 min
Saving is income minus consumption: S = Y − C.
So S = −C̅ + (1−b)Y, and MPS = 1 − MPC.
2 Detailed Notes
Definition
Definition
The saving function (propensity to save) shows the relationship between saving and income. Since Y = C + S, S = Y − C = −C̅ + (1−b)Y.
Formula
Key equation
S = −C̅ + (1−b)Y
where (1−b) = MPSThe saving curve starts below zero (dissaving at low income) and slopes upward with slope = MPS.
Formula
APS and MPS
APS = S ÷ Y
MPS = ΔS ÷ ΔY
MPC + MPS = 1
APC + APS = 1APS = average propensity to save, MPS = marginal propensity to save. They sum with their consumption counterparts to 1.
Diagram
Break-even point
Where consumption = income (C = Y), saving = 0 — the break-even point. Below it, saving is negative (dissaving); above it, saving is positive.
Example
Deriving saving from consumption
C = 100 + 0.8Y. Then S = Y − C = −100 + 0.2Y. MPC = 0.8, MPS = 0.2. At Y = 500: S = −100 + 100 = 0 (break-even).
In One Minute
S = Y − C = −C̅ + MPS·Y. MPS = 1 − MPC. APS = S/Y. Saving curve is the mirror of the consumption curve around the 45° line.
Important for Exam
- ⭐ 1-mark: MPS = 1 − MPC.
- ⭐ Derive saving function from consumption function (3 marks).
- ⭐ Break-even point concept + diagram.
- ⭐ Numericals: APS, MPS, saving at given income.
Watch & Learn
Watch on YouTubeConsumption function & Saving Function - with Derivation - AD- AS Part 7 Class 12 Macro economics.
by Sunil Panda-The Educator
Why watch? Derivation, APS/MPS and diagram together.
Open on YouTube Watch on YouTubeConsumption function & Saving Function - with Derivation - AD- AS Part 7 Class 12 Macro economics.
by Sunil Panda-The Educator
Why watch? Visual link between the two curves.
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