Keynesian economics Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomics, macroeconomic theories and Economic model, models of how aggregate demand (total spending in the economy) strongl ...

, the average propensity to save (APS), also known as the savings ratio, is the proportion of

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. F ...

which is saved, usually expressed for household

savings Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an ...

as a fraction of total household disposable income (taxed income).

APS=\frac

The ratio differs considerably over time and between countries. The savings ratio for an entire economy can be affected by (for example) the proportion of older people (as they have less motivation and capability to save), and the rate of

inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...

(as expectations of rising prices can encourage people to spend now rather than later) or current interest rates. APS can express the social preference for investing in the future over consuming in the present. The complement (1 minus the APS) is the average propensity to consume (APC). Low average propensity to save might be the indicator of a large percentage of old people or high percentage of irresponsible young people in the population. With income level changes, APS becomes an inexact tool for measuring these changes. So, the marginal propensity to save is used in these cases.

Characteristics of APS

Mathematics

From the equation:

Y=C+S

APS is calculated from the amount of savings as a fraction of income.

APS=\frac

APS can be calculated as total savings divided by the income level for which we want to determine the average propensity to save. Example 1: The income level is 90 and total savings for that level is 25, then we will get 25/90 as the APS. Average propensity to save can not be greater than or equal to 1, but APS can be negative, if income is zero and consumption has a positive value. Example 2: The income is 0 and consumption is 20, so the APS value will be -0.2.

Average propensity to save is decreasing

As is a fraction of income, an increase in income would make the proportion of saving lower. Also income rises faster than savings so APS tens to decrease as income increase.

Marginal propensity to save (MPS)

Marginal propensity to save is the proportion of an increase in income devoted to savings. Mathematically, the

\mathit

function is expressed as the

derivative In mathematics, the derivative is a fundamental tool that quantifies the sensitivity to change of a function's output with respect to its input. The derivative of a function of a single variable at a chosen input value, when it exists, is t ...

of the savings function

S

with respect to disposable income

Y

, i.e., the instantaneous slope of the

S

Y

curve. :

\mathit=\frac

or, approximately, :

\mathit = \frac

, where

\Delta S

is the change in savings, and

\Delta Y

is the change in disposable income that produced the consumption.

References

Gross domestic product Personal finance Financial ratios {{econ-stub

Characteristics of APS

Mathematics

Average propensity to save is decreasing

Marginal propensity to save (MPS)

See also

References