Elasticity of Savings - Explained
What is Elasticity of Savings?
Written by Jason Gordon
Updated at March 26th, 2023
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What is Elasticity of Savings?
Elasticity of savings is the percentage change in the quantity of savings divided by the percentage change in interest rates. That is:
If the government passes laws that cut taxes on savings (allowing the return on savings to rise), the individuals are incentivized to save more.
If the supply curve for financial capital is elastic, this tax cut will cause a higher percentage increase in the quantity of savings.
If the supply curve for financial capital is highly inelastic, then a percentage increase in the return to savings will cause only a small increase in the quantity of savings.
In the short run, generally the elasticity of savings with respect to the interest rate appears fairly inelastic.
Back to:ECONOMIC ANALYSIS & MONETARY POLICY
Related Topics
- Elasticity
- Perfect, Zero, Infinite, and Constant Elasticity
- Elasticity of Demand
- Elasticity of Supply
- Price Elasticity of Supply and Demand
- Tax Incidence
- Cross Elasticity of Demand
- Cross-Price Elasticity of Demand
- Raising Prices Affect Revenue
- Price Sensitivity
- What is Elasticity and Tax Incidence?
- Short Run
- Elasticity of Savings
- Income Elasticity of Demand
