Saving Function:

As we noted  earlier, income  is  the sum of consumption and  saving.  Thus  in the simplified model  that we discussed above, that  part of  income which is  not consumed  is  saved. In Fig. we have presented the saving  function. Notice  that when  income  is Y₁ there  is  no saving,  asaonsumption  is equal  to income. When  income  is  less  than Y, dere is dis-saving, that  is, the household  is  expected  to borrow or draw  upon past saving in order to finance  its  current consumption expenditure. On the other hand, when  incode  i more  than Y₁ a  part  of  income  is  channelbed  towards saving.  Accordingly,  in Fig. saving  function  intersects x-axis when income  is Y₁. Since  the  consumption function is a straight line, the saving function also is an upward sloping straight line with slopes s which is called  the marginal propensity  to save (MPS. The intercept  tirm  is negative  since saving  is negative when  income  is  zero. Moreover, MPS  is  positive  and  remain between  zero and one.  In equation form  the saving  function  is given  by

Remember  that MPC and MPS add up to unity, that is, c + s =  1