The Sales Plan of the Consumer: Saving and Savings

Abstract

By saving we mean that part of a consumer’s income that he decides not to spend. To date, we have assumed all income was spent — i.e. that the consumer operated at a point on the budget line. This analysis remains correct provided we modify the budget line to refer to income available for consumer-good expenditure — i.e. that income left over after the saving decision has been made. For any period t then, we have

$${S_t} = {Y_t} - {C_t}$$

where S _t is saving, Y _t is income, and C _t is consumption expenditure. What we are now interested in is not the way in which C _t is distributed over alternative goods, but the prior decision to distribute income between saving and consumption-expenditure.