... saving. Disposable income is a function of consumption plus saving, thus if disposable income increases then the additional income will be distributed in one of these two ways. The marginal propensity to consume (MPC) shows how probable additional income is likely to be spent so if after an increased income the MPC changes from, for example, 0.6 to 0.65 then it means that the marginal propensity to save has decreased from 0.4 to 0.35. Interest rates can also have an impact upon the amount one budgets towards consumption or investment. If the interest rate falls then an individual is less likely to put money into the bank for the sole purpose of earning interest on invested capital. Therefore, if the money is not invested in savings then it may be that the individual chooses to spend instead, although this is not entirely true as there are many other means of ...

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