Propensity to save

# Propensity to save - of the propensity to save is always...

This preview shows page 1. Sign up to view the full content.

Propensity to save: For Keynes, savings is simply non-consumption. It is a negative activity. That portion of the income which remains unconsumed is automatically saved. Therefore there is no propensity to save as such. This will be clear with the help of Keynes’ equation of expenditure. Just as the equation of income : Y = C + I We have the equation of expenditure: Y = C + S or rather, S = Y C Therefore once the size of the income (Y) and propensity to consume (C/Y = b) are known, the amount of savings and propensity to save (S/Y = 1 b) can be determined automatically. The level of employment directly depends upon the size of the effective demand. Therefore a higher value
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: of the propensity to save is always desirable. Propensity to save varies in its values (between 1 to 0). Hence closer the value of 'b' to 1, more will it be favorable to promote employment. But if the 'b' value is closer to zero it would be highly unfavorable in generating employment. Contrarily, the value of S/Y closer to zero is favorable, while S/Y closer to 1 will be unfavorable in promoting employment opportunities . With this in mind let’s proceed with multiplier derivation....
View Full Document

## This note was uploaded on 11/17/2011 for the course EC ec 201 taught by Professor - during the Fall '10 term at Montgomery.

Ask a homework question - tutors are online