Saving function

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 Y=C+S
S=Y − C
Recall the Keynesian consumption function, C = α + bY

S = Y − (𝛼 + 𝑏𝑌)

= 𝑌 − 𝑎 − 𝑏𝑌

= −𝑎 + 𝑌 − 𝑏𝑌

= −𝑎 + 1 − 𝑏 𝑌

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(1 − 𝑏) is the value of MPS and …..

Propensity to save

1. Average propensity to save

2. Marginal propensity to save

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 !
1. 𝐴𝑃𝑆 = "
∆!
2. 𝑀𝑃𝑆 = ∆"

Nexus between APC and APS

𝐴𝑃𝐶 + 𝐴𝑃𝑆 = 1
Nexus between MPC and MPS

𝑀𝑃𝐶 + 𝑀𝑃𝑆 = 1
We will try with the help of linear and non-linear consumption functions

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Linear consumption function

Y C S APC APS MPC MPS

1000 950 950 /1000 = 50/1000= - -

50
1100 1020 1020 /1100 = 80/1100= 70/100 = 0.70 30/100=
80
1200 1090 1090 /1200 = 110/1200= 70 /100 = 30/100=
110
1300 1160 1160 /1300 = 140/1300= 70 /100 = 30/100=
140
1400 1230 1230 /1400 = 170/1400= 70 / 100 = 30/100=
170
1500 1300 1300 /1500 = 200/1500= 70/ 100 = 30/100=
200
1600 1370 1370 /1000 = 230/1600= 70 /100 = 30/100=
230

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Non-linear consumption function
Y C S APC APS MPC MPS

1000 950 950 /1000 = - -

50 50/1000=

1100 1040 1040 /1100 = 90/100 = 10/100=0.10

60 60/1100= 0.90

1200 1120 1120 /1200 = 80 /100 = 20/100=

80 80/1200=

1300 1190 1190 /1300 = 70 /100 = 30/100=

110 110/1300=

1400 1250 1250 /1400 = 60 / 100 = 40/100=

150 150/1400=

1500 1300 1300 /1500 = 50/ 100 = 50/100=

200 200/1500=

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Thank you