Question

What do you mean by savings ? Define average propensity to save and Marginal propensity to save.

Answer 1

After deducting consumption from the income whatever is remaining is called saving. The relationship between saving and income is expressed by a propensity to save. The propensity to save of two types:

(1) Average Propensity to save: Average propensity to save is the ratio between total saving and total income at a given level of income.

(2)Marginal Propensity to save: Ratio of change in saving caused by the change in income is called Marginal Propensity to Save.