The part of income not spent on consumption is saving. Saving is consumption decline. When saving increases, consumption will drop. According to Keynes, the height of saving in the economy, similar to consumption, basically based on income. The relationship between income and saving can mathematically be stated as in equation shown below and it is termed as saving function.
S = -a + byS = - 4 + .2Y
Here, S = Saving; Y = Income; -a = dis-savings.Marginal tendency to Save MPS is the ratio of change in saving into a change in income. Therefore this is the rate of change in the propensity to saving.
Or MPC = ΔS/ΔY
Here,ΔS = Change in saving andΔY = Change in incomeWith a rise income, when MPC tends to drop, MPS will tend to increase. When MPC stay constant, MPS will too stay constant. Therefore income comprises of consumption and saving.
Therefore Y = C + S
MPC + MPS = 1MPS = 1 – MPC orMPC = 1 – MPSIn an economy wherever people spend less of their extra income, MPC will be less and the CC curve will be less sheer. It will be noted that the constant (-a) is dis-saving since it is autonomous consumption that is not related to income. The autonomous consumption will became zero in long run. That is, households can’t consume without income in long run. Therefore in long run, the consumption purely based on income and the curve C that begins from origin.
Latest technology based Economics Online Tutoring Assistance
Tutors, at the www.tutorsglobe.com, take pledge to provide full satisfaction and assurance in Theory of Income Determination help via online tutoring. Students are getting 100% satisfaction by online tutors across the globe. Here you can get homework help for Theory of Income Determination, project ideas and tutorials. We provide email based Theory of Income Determination help. You can join us to ask queries 24x7 with live, experienced and qualified online tutors specialized in Theory of Income Determination. Through Online Tutoring, you would be able to complete your homework or assignments at your home. Tutors at the TutorsGlobe are committed to provide the best quality online tutoring assistance for Economics Homework help and assignment help services. They use their experience, as they have solved thousands of Economics assignments, which may help you to solve your complex issues of Theory of Income Determination. TutorsGlobe assure for the best quality compliance to your homework. Compromise with quality is not in our dictionary. If we feel that we are not able to provide the homework help as per the deadline or given instruction by the student, we refund the money of the student without any delay.
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!