Saving in our simple model
A)varies inversely with income
B)is determined primarily by the interest rate
C)is positive when a person spends less than her income
D)can never be negative because it is a stock
E)can never be negative because it is a flow

Question

Quizplus · Accepted Answer

In our simple model, saving is defined as the difference between income and consumption. Therefore, if a person spends less than her income (i.e. consumption is less than income), then saving is positive. Saving is not necessarily inversely related to income nor is it solely determined by the interest rate. Additionally, while saving is a stock variable, it can be negative if a person's cumulative consumption exceeds her cumulative income over time.

Saving in Our Simple Model