The Autonomous Value of Savings and the Marginal Propensity Research Paper

The Autonomous Value of Savings and the Marginal Propensity - Research Paper Example The marginal propensity to consume is the slope of the above curve, the marginal propensity to consume value determines how the consumption of a consumer responds to a change in income, the value of the marginal propensity to consume is greater than zero but less than 1, this means that when income increases all the increase is not used for consumption purposes but saved or invested in other income-generating projects, that is why the marginal propensity to consume is greater than 0 but less than 1. Savings is the amount of income that is not consumed and consumers prefer to save in banks or invest, when income increases then there is a possibility that savings will increase, Keynes stated that savings are a function of income, for this reason, therefore, the savings function can be stated as follows: S = F(Y). The savings function can be stated as follows: S = a1 + a2 (Y-T) Where a is the autonomous value which we expect to be zero or negative, a2 is the marginal propensity to save which is greater than zero but less than 1, Y is income and T is tax, we can calculate the marginal propensity to consume as the change in savings divided by the change in income. This value shows the responsiveness of savings level due to an increase or decline in the level of income. The relationship between savings and income: this section considers the relationship between savings and consumption, when income increases then the level of savings and consumption increases, income is either consumed or saved, for this reason, therefore, there is a relationship between consumption and savings.