Monday, August 24, 2009

Saving Function

The saving function shows the relationship between the level of saving and income.

Here we show disposable income on horizontal axis, but now saving, whether negative or positive in amount is on the vertical axis.

The saving function is the mirror image of the consumption function. This saving function comes directly from following figure of consumption function. It is the vertical distance between 450 line and consumption function.

For example at point A, we see that the house hold’s saving is negative because the consumption function lies above the 450 line. This shows that dissaving directly the saving function is below the zero saving line at point A. Similarly positive saving occurs to right of point B because saving function is above the zero-saving line.

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