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DEMAND ELASTICITY AND TOTAL EXPENDITURE: The notion that price-induced changes in total expenditure for a good (price times quantity) depends on the relative price elasticity of demand. In particular, for relatively elastic demand (1 < E < ∞) changes in price cause total expenditure to change in the opposite direction. An increase in price causes total expenditure to fall and a decrease in price causes total expenditure to rise. For relatively inelastic demand (0 < E < 1) changes in price cause total expenditure to change in the same direction. An increase in price causes total expenditure to rise and a decrease in price causes total expenditure to fall. For unit elastic demand (E =1) price changes do not cause any change in total expenditure. Total expenditure is the same whether price increases or decreases.

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INTERCEPT, SAVING LINE:

The intercept of the saving line indicates autonomous saving, saving that does not depend on the level of income or production. This can be thought of as the baseline level of saving that would be undertaken if income falls to zero. Autonomous saving is affected by the consumption expenditures determinants, which cause a change in the intercept and a shift of the saving line. The value of the intercept of the saving line is the negative of the value of the intercept of the consumption line.
Saving Line
Saving Line
The saving line, also termed propensity-to-save line or saving function, shows the relation between saving and income for the household sector. The income measure commonly used is national income or disposable income. Occasionally a measure of aggregate production, such as gross domestic product, is used instead.

A representative saving line is presented in the exhibit to the right. This green line, labeled S in the exhibit, is positively sloped, indicating that greater levels of income generate greater saving by the household sector. This positive relation corresponds to the fundamental psychological law of Keynesian economics.

The saving line graphically illustrates the saving-income relation for the household sector, which is the foundation of the leakages line used in Keynesian economics to identify equilibrium income and production.

The intercept of the saving line indicates the intersection point between the saving line and the vertical saving axis. The saving line intersects the vertical axis at a value of -$1 trillion. Theoretically, this is a minimum "baseline" level of saving, the amount of saving undertaken if income falls to zero. This level happens to be negative because consumption exceeds income. More to the point, this intersection indicates autonomous saving--saving unrelated to income. Click the [Intercept] button to illustrate.

Autonomous saving is saving by the household sector that is unrelated to and unaffected by the level of income or production. This is best indicated by a zero level of income. While individuals occasionally come face-to-face with autonomous saving, as their incomes drop to zero due to unemployment, for the aggregate economy autonomous saving is mostly an unlikely theoretical extrapolation.

However, from an analytical perspective, the intercept of the saving line is affected by the consumption expenditures determinants. These are ceteris paribus factors other than income that affect consumption and thus also affect saving, but which are held constant when the saving line is constructed. Any change in these determinants cause the saving line to shift, which necessarily means a new intercept and a new level of autonomous saving.

<= INTERCEPT, NET EXPORTS LINEINTEREST-RATE EFFECT =>


Recommended Citation:

INTERCEPT, SAVING LINE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: July 23, 2018].


Check Out These Related Terms...

     | saving line | slope, saving line | consumption line | slope, consumption line | intercept, consumption line | saving schedule | saving function | induced saving | autonomous saving | average propensity to save | marginal propensity to save | derivation, saving line | effective demand | psychological law |


Or For A Little Background...

     | saving | consumption | consumption expenditures | Keynesian economics | macroeconomics | household sector | disposable income | national income | gross domestic product |


And For Further Study...

     | personal consumption expenditures | induced expenditures | autonomous expenditures | aggregate expenditures | aggregate expenditures line | derivation, consumption line | consumption expenditures determinants | Keynesian model | Keynesian equilibrium | leakages | injections-leakages model | aggregate demand | paradox of thrift | fiscal policy | multiplier |


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