What is Average Propensity to Save?

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What is Average Propensity to Save (APS) Example Suppose my Salary is Rs 50000 Out of this, I spend Rs 30000 And Save Rs 20000 Savings ( S ) Income (Y) 20000 50000 Ratio of these 2 is APS Average Propensity to Save = Savings/Income = S/Y = 20000/50000 = 0.4 What is APS? APC means Average Propensity to Save It is Ratio of aggregate savings to aggregate income APC=S/Y Does APS increase with level of income? Example Consumption Expenses C Income Y Savings S APS 0 10000 20000 30000 40000 50000 60000 4000 12000 20000 28000 36000 44000 52000 - 4000 - 2000 0 2000 4000 6000 8000 - - 0.20 0.00 0.07 0.10 0.12 0.13 It can be seen that, APS increases with increase in income But not in same proportion It is because as the income of people increase, income does not rise with same proportion APS Can be Negative, 0 or Positive but it can't be 1 or more than 1 When is APS 0? Example Suppose my Salary is Rs 50000 Out of this, I spend Rs 50000 So, at this point Savings are 0 Average Propensity to Save = Savings/ Income = 0/50000 = 0 Note If APS is 0, it means person is not saving any income. Can APS be equal to 1? Example Suppose my Salary is Rs 50000 Out of this, I save full 50000 So, at this point consumption is 0 Average Propensity to Save = Savings/ Income = 50000/50000 = 1 Note If APS is 1, it means person is savings all of their income However, such can never exist because there is always autonomous consumption (There is minimum consumption even at 0 level of income) Can APS be more than 1? Example Income = 10000 Saving = 11000 Average Propensity to Save = Savings/ Income = 11000/10000 = 1.1 Note Income= Consumption+ Saving Consumption=Income-Savings Consumption Exp = 10000-11000 Consumption Exp = -1000 Which is not possible APS > 1 is not possible because Savings cannot be more than income Also in this case, Consumption will be negative This is not possible as there is autonomous consumption Can APS be Negative? Example Suppose my Salary is Rs 50000 But I spend Rs 52000 Consumption = 52000 Savings = -2000 Average Propensity to Save = Savings/ Income = -2000/50000 = -0.04 APS is negative in case of negative savings (dissaving's) It happens when consumption expenditure is more than income This is possible as a person may spend more than his income using money from his friends or families APS Schedule and Summary Summary - APS Income Y Consumption C Savings S APS 0 10000 20000 30000 40000 50000 60000 4000 12000 20000 28000 36000 44000 52000 - 4000 - 2000 0 2000 4000 6000 8000 - - 0.20 0.00 0.07 0.10 0.12 0.13 Value of APS increases with increase in Income APS can be negative or positive But its value cant be more than 1 How to Draw Graph of APS Steps On X Axis, We represent Income On Y Axis, We Represent Savings It can be seen that Savings Curve is Positively Sloping starting at Point S At any point on Savings Curve, we can calculate APS If we calculate at Point P, it is Savings/Income =OR/OY