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Today’s take away

 Lecture Plan

❖Saving
❖Investment
Learning Outcome
1. To understand the different types of savings
2. Enabling the student to identify the importance
of investment
 Let’s recall

1. What business factors affect consumption

or propensity to consume?
Saving Function
The relationship between the
change in income and the
change in saving is the
propensity to save.
PROPENSITY TO SAVE
• We can also express propensity to save in
two different ways. These are the
following:

a) The average propensity to save (APS),

and

b) The marginal propensity to save (MPS).

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The Average Propensity to Save (APS)
• The average propensity to save is the ratio
of total savings to total income. Thus,

S
APS =
Y
where, S = saving and Y = income.
The Marginal Propensity to Save (MPS)
Marginal propensity to save is the ratio of
change in saving to change in income.

MPS= Change in savings/ change in income

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Polling question
• Average Propensity to Save is the
a. Ratio of saving to income
b. Ratio of change in saving to change in
income
c. Both (a) and (b)
d. None of the above
 S
MPS =
Y
We know that MPC + MPS = 1. Therefore, MPS = 1- MPC or

C
MPS = 1 −
Y

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RELATION BETWEEN SAVING AND
CONSUMPTION
• Y=C+ S
• WHERE Y =DISPOSABLE INCOME
C= CONSUMPTION
S= SAVINGS
AND C= C0+ C1Y

APC+APS=1

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RELATION BETWEEN MPC
AND APC
S+ C= Y
S= Y- C

MPS+ MPC=1
MPS=1-MPC

Or APC +APS =1

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Polling question
• In general the value of MPC lies
a. More than infinite
b. Between 0 and 1
c. Both (a) and (b)
d. None of the above
 CONSUMPTION FUNCTION:C= 1000 + 0.8Y)

DISPOS AUTON CONSUM TOTAL SAVING APC APS

ABLE OMUS PTION S
INCOME INDUCED

3000 1000
4000 1000
5000 1000
6000 1000
7000 1000
8000 1000
9000 1000

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Investment
 Investment
• Meaning
• Different types of investment
• Factors affecting investment
• Concept of multiplier
• Types of multiplier
• Uses of multiplier
• Limitations of multiplier
 Investment
• Investment in general sense means using
or spending money on acquiring physical
or financial assets and skills that yield a
return over time.
• Investment conceptually refers to addition
made to the physical stock of capital