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IMF: The abbreviation for International Monetary Fund, which is an agency of the United Nations established in 1945 to monitor and stabilize foreign exchange markets. Close to 150 of the world's nations (which is just about all of them) belong to the IMF. The IMF was set up to keep countries from manipulating their exchange rates in such a way as to gain a competitive trading advantage over others. Their strategies of control have changed over the decades, but they currently use a managed float where exchange rates are allowed to fluctuate with changing market conditions, but only within certain ranges. The IMF also plays an active role in providing the "international" currency needed to participate in foreign trade through its system of Special Drawing Rights.

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AUTONOMOUS SAVING:

Household saving that does not depend on income or production (especially disposable income, national income, or even gross domestic product). That is, changes in income do not generate changes in saving. Autonomous saving is best thought of as a baseline level of saving (usually negative) that the household sector undertakes in the unlikely event that income falls to zero. It is measured by the intercept term of the saving function or the saving line. The alternative to autonomous saving is induced saving, which does depend on income.
Autonomous saving is saving by the household sector that is unrelated to and unaffected by the level of income or production. This is one of two basic classifications of saving. The other is induced saving, saving that is based on the level of income or production. In other words, household saving can be divided into: (1) a baseline amount of saving which, in theory, would be undertaken even if the household sector had no income and (2) additional saving that results from the income available to the household sector.

The bulk of saving falls in the induced category because people are prone to base saving on available income. However, some saving (actually negative saving) takes place independent of income. Autonomous saving generally surfaces primarily as a theoretical extreme, at least for the aggregate household sector--the amount of saving undertaken in the unlikely event that household sector income is zero.

However, it does have a pragmatic interpretation, especially for individuals. A typical consumer such as Pollyanna Pumpernickel is bound to base personal saving on available income. However, should Pollyanna's income fall to zero (perhaps due to a temporary bout of unemployment), then her saving is bound to fall. In fact, it is likely to fall so much that it turns negative as Pollyanna's consumption exceeds income. That is, she probably finds it necessary to withdraw previously accumulated saving to meet her expenses. This is Pollyanna's autonomous saving.

Autonomous In An Equation

One way to illustrate autonomous saving is with the saving function, such as the equation presented here:
S=c+dY
where: S is saving, Y is income (national or disposable), c is the intercept, and d is the slope.

The two key parameters that characterize the saving function are slope and intercept. Autonomous saving is indicated by the intercept of the saving function. Induced saving is indicated by the slope.

  • An Autonomous Intercept: The intercept of the saving function (c) measures the amount of saving undertaken if income is zero. If income is zero, then saving is $c. The intercept is generally assumed and empirically documented to be negative (a < 0). It is conceptually identified as autonomous saving.

  • An Induced Slope: The slope of the saving function (d) measures the change in saving resulting from a change in income. If income changes by $1, then saving changes by $d. This slope is generally assumed and empirically documented to be greater than zero, but less than one (0 < b < 1). It is conceptually identified as induced saving and the marginal propensity to save (MPS).
The connection between consumption and saving shows up in the saving function. The consumption function is commonly specified as:
C=a+bY
where: C is consumption expenditures, Y again is income, a is the intercept, and b is the slope.

Because income not spent is saved, the saving function can be specified as:

S= -a+(1-b)Y
where: S is saving and Y is income. However, now the intercept is -a rather than c and the slope is (1-b) rather than d. This alternative specification shows the connection between the saving function and the consumption function. The intercept of the saving function (-a) is the negative of the intercept of the consumption function (a).

Autonomous In A Line

Saving Line
Saving Line

Another common way to identify autonomous saving is with a standard saving line, such as the one presented in the exhibit to the right. This is reasonable because the saving line is a graph of the saving function. The red line, labeled S in the exhibit, is the positively-sloped saving line for the equation: C = -1 + 0.25Y. This line indicates that a minimum level of (negative) saving is undertaken by the household sector even if income is zero.

The two primary characteristics of the saving function--slope and intercept--are also identified by the saving line.

  • An Autonomous Intercept: The saving line intersects the vertical axis at a negative value of -$1 trillion. Click the [Intercept] button to highlight. Once again this intercept value is autonomous saving.

  • An Induced Slope: The slope of the saving line presented here is positive, but less than one. In this case the slope is equal to 0.25. Click the [Slope] button to highlight. And once again this is induced saving and the marginal propensity to save (MPS).

Consumption Expenditures Determinants

This is a good place to make note of factors other than income that also affect saving. While income is THE most important influence on saving, interest rates, consumer confidence, and wealth are among other important influences--officially termed consumption expenditures determinants.

These determinants, similar to those for other relations in the study of economics, while primarily specified as determinants of consumption expenditures also cause a change in the underlying saving-income relation. From a graphical perspective, these determinants cause the saving line to shift, which effectively means that the intercept of this line changes.

More generally, these determinants cause a change in autonomous saving. A decrease in interest rates, a boost in consumer confidence, or an increase in financial wealth, for example, all trigger an decrease in saving... even though income remains unchanged.

Other Autonomous Expenditures

Saving is only one of several autonomous variables that enters into the study of Keynesian economics. Of course, the complement of saving, consumption, is also an important autonomous variable. The other three aggregate expenditures--investment expenditures, government purchases, and net exports--also have important autonomous components. In fact, the autonomous components of these other expenditures are often more important in Keynesian economics than autonomous consumption or saving.
  • Autonomous investment is key factor in the analysis of business-cycle instability. Business cycle ups and downs can often be traced back to autonomous changes in investment expenditures by the business sector. While these autonomous expenditures are unrelated to income, they are influenced by other factors, such as interest rates, technology, expectations, and wealth.

  • Although some degree of government purchases are induced by income, the government sector is also inclined to change spending in response to factors other than income. Autonomous government purchases result from these other influences and are perhaps most important in the analysis of fiscal policy designed to correct business cycle ups and downs.

  • Autonomous net exports, the difference between exports and imports, are based on global economic conditions, especially economic activity in other countries. These expenditures by the foreign sector also depend on such things as currency exchange rates, trade agreements, wars and conflicts, or global politics.

<= AUTONOMOUS NET EXPORTSAVERAGE COST =>


Recommended Citation:

AUTONOMOUS SAVING, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: June 22, 2018].


Check Out These Related Terms...

     | induced saving | saving function | saving line | marginal propensity to save | autonomous consumption | autonomous expenditures | autonomous investment | autonomous government purchases | autonomous net exports | intercept, saving line | slope, saving line | effective demand | psychological law | injections | leakages |


Or For A Little Background...

     | Keynesian economics | circular flow | aggregate expenditures | saving | consumption | consumption expenditures | personal consumption | macroeconomics | household sector | disposable income | national income | gross domestic product | business cycles | determinants |


And For Further Study...

     | aggregate expenditures line | average propensity to save | derivation, saving line | derivation, consumption line | consumption expenditures determinants | Keynesian model | Keynesian equilibrium | injections-leakages model | aggregate demand | paradox of thrift | fiscal policy | multiplier |


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