propensity to save

Propensity to saveclick for a larger image
Fig. 164 Propensity to save. The effect of an increase in the propensity to save on national income.

propensity to save

the proportion of NATIONAL INCOME that is saved by households (see SAVING). The average propensity to save (APS) is given by:

The marginal propensity to save (MPS) is the fraction of any change in income that is saved:

Alternatively, saving can be expressed as a proportion of DISPOSABLE INCOME.

In the simple CIRCULAR FLOW OF NATIONAL INCOME MODEL, all disposable income is either consumed or saved by households. It follows that the sum of the MARGINAL PROPENSITY TO CONSUME and the MPS add up to 1 (note that saving is defined as all disposable income that is not spent by consumers regardless of whether savings are placed in banks, hidden under the bed, or whatever).

A rise in the propensity to save decreases consumption expenditure for a given income level, for example, from OC to OC1 at income level Y in Fig. 164. This increases the savings withdrawal from the circular flow of national income, resulting in a decrease in aggregate demand and national income.

References in periodicals archive ?
David Elms, chief executive of unbiased.co.uk, said, 'This year's research into the nation's propensity to save shows some improvement, but it is disappointing that we still define ourselves as a nation of spenders rather than a nation of savers.'
Reza Chady, director at GfK Martin Hamblin, said: "The additional pressure on disposable income from higher interest seems to be impacting on consumer spending and encouraging caution, as seen in the increased propensity to save."
According to a broadly accepted basic view, first formulated in the Life Cycle Hypothesis (Modigliani, 1954, 1956) and in the Permanent Income Hypothesis (Friedman, 1957), consumption is a relatively stable fraction of permanent income (life resources), mostly influenced by its long-run growth, but is not very sensitive to transitory fluctuations in earnings; this means that the marginal propensity to consume (c) with respect to short-run, cyclical variation of income, tends to be relatively small, and therefore the corresponding propensity to save (s = 1 - c) tends to be large.
We have assumed a deterministic framework in order to obtain tractable and yet revealing results regarding the propensity to save for retirement.
Another controversy is about the level of the Marginal Propensity to Consume (MPC) and, therefore, the Marginal Propensity to Save (MPS).
At the primary level, the subjects or competencies on entrepreneurship will principally focus on teaching the fundamental and ideal values necessary to become successful entrepreneurs, which include to being hardworking, creative, cost-efficient and learning the propensity to save.
[ClickPress, Mon Jul 15 2013] The propensity to save has crept into the baby products market as well; volume sales are going down for many of the baby and child-specific categories.
Pakistani consumers being net spenders with low propensity to save would spend in this sector, therefore banks will disburse.
Let [gamma] = [partial]I/[partial]y > 0 be the marginal propensity to invest, [theta] = [partial]NX/[partial]y < 0 be the marginal negative trade balance effect (due to the marginal propensity to import), and [alpha] = [partial]S/[partial]y > 0 be the marginal propensity to save.
The study found that the propensity to save out of transitory income was higher than that for permanent income.
The propensity to save increased: 23% of Ivanovs now believe that this is a favorable time to save money, up from with 18% in our previous survey.
But savings levels in the region are set to remain static over the coming months as people predict a neutral propensity to save.