Essay: With Increase in Savings, Income Left for Consumption is Less

Savings is defined as the “portion of disposable income not spent on consumption of consumer goods but accumulated or invested directly in capital equipment or in paying off a home mortgage, or indirectly through purchase of securities” (Vermann, 2009). With increase in savings, income left for consumption is less.

With low or static inflation and interest rate, people are encouraged to save money for investment rather than spent it on consumption. Since it is not possible to reduce consumption of essentials, it follows that amount to be spent on purchasing items like Ipods, which are considered luxuries is reduced (Turvey, 2007).

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