saving

Examples of saving in the following topics:

• Role in Matching Savings and Investment Spending

  • Savings are income after-consumption and investment is what is facilitated by saving.
  • Savings is defined as income that is not consumed.
  • The level of saving in the economy depends on a number of factors:
  • Perceived likelihood of reduced return through regulation or taxation on savings will make saving less attractive.
  • The factors as stated affect the marginal propensity to save (MPS), the percentage of after-tax income that an economic agent will choose to save.

• Consumption outcomes

  • Marginal propensity to save is also used as an alternative term for slope of saving line .
  • The saving line is given by the equation:
  • S stands for savings, while -a refers to autonomous savings.
  • As savings increases as disposable income increases, the saving line slopes upward.
  • Marginal propensity to save is also used as an alternative term for slope of saving line.

• Incentivizing Saving and Investment

  • Both savings and investment affect the overall economy.
  • Broadly, each incentive adjusts the cost of saving or investing.
  • Low interest rates encourage investment and discourage savings.
  • It can also encourage savings through tax breaks.
  • In the second, the government encourages saving by helping savers earn more of the interest they earn over time in the savings vehicle.

• The Importance of Aggregate Decisions about Consumption versus Saving and Investment

  • Money can either be consumed, invested, or saved (deferred consumption or investment).
  • Spending = Income – Net Savings = Income + Net Increase in Debt
  • For the economy as a whole, aggregate savings is greater than or equal to investment, which is usually in the form of borrowed funds available as a result of savings.
  • Through investment spending, savings influences aggregate demand.
  • Furthermore, since consumption and investment are components of GDP but saving is not, increased savings indirectly reduces GDP .

• Distribution Effects of Inflation

  • In general, this means that those with savings in the form of currency or bonds lose money from inflation.
  • Those with negative savings (debt) or savings in the form of stocks, however, are better off with higher inflation.
  • In demographic terms, this often manifests as a transfer from older individuals, who are wealthier and tend to hold their savings in more conservative assets such as cash and bonds, to younger individuals, who have more debt and tend to hold their savings in more aggressive assets such as stocks.

• The budget constraint: balancing income, consumption, and saving across time

  • At this stage the individual repays any past borrowings and begins to save for her or his retirement.
  • In this stage of life, the individual dis-saves, or lives off past savings until death.
  • Some economists argue that such a consistent means of discounting consumption and saving is not realistic.
  • As a result is consumption is much higher than expected in the present, while saving is much lower.
  • Explain how agents make consumption and savings decisions subject to multiperiod budget constraints.

• Fiscal Levers: Spending and Taxation

  • Part of the disposable income will be spent, but part of it will be saved.
  • The money that is saved does not contribute to the multiplier effect .
  • where MPC is the marginal propensity to consume (the change in consumption divided by the change in disposable income), and MPS is the marginal propensity to save (the change in savings divided by the change in disposable income).
  • The tax multiplier is smaller than the government expenditure multiplier because some of the increase in disposable income that results from lower taxes is not just consumed, but saved.

• Disposable Income

  • This can be restated as: consumption expenditure + savings = disposable income
  • Commonly, disposable income is the amount of "play money" left to spend or save.
  • Alternatively, it can also be saved.

• Cost-Benefit Analysis

  • The benefits side of the analysis might include time savings for passengers who can now avoid traffic, an increase in the number of passenger trips (as more people could now use the road), and lives saved by dint of fewer car accidents.
  • The benefits of a highway expansion project might include time savings for passengers, additional passenger trips, and saved lives.

• Open Economy Equilibrium

  • They also have the ability to invest savings outside of the country.
  • If a country saves more money than it makes, it can lend the difference to foreigners.
  • The amount that a country saves is total of investment and net exports:
  • Savings will increase and investment will drop as investors borrow and invest abroad instead.
  • The capital flows, which depend on interest rates and savings rates, also adjust to reach equilibrium.