Household Saving and Dissaving

Households save money by directing some part of their income to various investment instruments, instead of spending all the income. The unexpended part of the disposable income is called savings. If all of the income is spent, the value of the savings is zero. If households spend above their incomes, there is negative savings. Savings are a function of disposable income. As the disposable income level increases, consumption also increases. However, there is no consumption hunger at high-income levels, and the tendency toward consumption increase takes the place of savings increase. That the consumption expenditures of individuals are higher than the disposable income is defined as negative savings, or dissaving.

In such a situation, the financing of current expenditures are met with savings from previous periods, ...