Induced savings refers to the part of total savings that changes directly when national income changes. It represents the portion of your income that is saved as your earnings grow.

Formula: Induced savings = MPS × Y = (1 − MPC) × Y

Key features:

• Induced savings is tied to the marginal propensity to save (MPS).
• When national income increases, induced savings increases by the value of the MPS.
• Because MPS + MPC = 1, increased savings acts as the opposite of induced consumption.
• It is considered a leakage from the economy because this money is saved instead of being spent on goods and services.
• The level of induced savings affects the multiplier effect: a higher MPS means more money leaves the spending cycle, which reduces the overall multiplier impact on the economy.
• In economic equilibrium, any change in induced savings must be balanced by changes in investment to keep the economy stable.