Question

Give the meaning of propensity to save.

Discuss in brief the two types of propensities to save.

Answer 1

Propensity to save refers to the tendency to save with the given level of income in the economy. The two propensities to save are

• APS refers to Average Propensity to save which defines the amount of savings in every 1 rupee of income for all level of income.
  
• Marginal Propensity to save refers to the percentage change in savings for every one rupee of change in the income. It is the ratio between the change in income and its corresponding change in savings.