Determination of Income and Employment

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Propensity to Save: It refers to the functional relationship between saving & level of income, S = f (Y). In other words, it is the tendency of the households to save at a given level of income.

The two types of saving function or propensity to save are as follows:

1. Marginal Propensity to Save (MPS): The ratio of change in savings (Δs) to change in income (ΔY) is called MPS.
         MPS = Δ S / Δ Y
2. Average Propensity to Save (APS): The ratio of total savings to total income is called APS.
       APS = S/Y