What is saving function (or Propensity to save)?

Solution

Meaning of Saving Function. The relationship between saving and income is called saving function. Simply put, saving function (or propensity to save) relates the level of saving to the level of income. It is the desire or tendency of the households to save at a given level of income. Thus saving (S) is a function (f) of income (Y). Symbolically, S =f(Y). Its two features are noteworthy: (i) Savings can be negative (-) at zero or low level of income and (ii) As income increases, savings also increase but more than the increase in income.
Remember, saving is residual income of households that is left after consumption.
Algebraically : S = Y – C

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