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I. Understanding aggregate demand (C + I + G + E_N )
     A. Consumption and Saving
          1. Average Propensity to Consume (APC) is consumption (C)
              divided by income (Y). 
              a. APC = C/Y
              b. APC decreases as income increases as people can afford to
                  save.
          2. Marginal Propensity to Consume (MPC) is the change in 
              consumption divided by the change in income. 
              a. MPC decreases as income increases.
              b. This makes sense because when an average is falling, what is 
                  happening on the margin must be less.
                  1) Suppose your test average after one test is 90 and after
                      2 tests its 80.
                  2) Your second test had to be below 80 to pull the average
                      down. Test 2 was a 70 and (90 + 70) / 2 = 80. 
                                                   
          3. Saving (S) is income minus consumption. S = Y - C
          4. Average Propensity to Save (APS) is saving divided by income 
              a. APS = S/Y 
              b. If APC drops as income increases, then APS increases as
                  income increases because APC + APS = 1
          5. Marginal Propensity to Save is change in saving divided by
              change in income. 
              a. MPS increases as income increases because wealthy people can 
                  afford to save a higher percentage of income.
              b. This makes sense because when an average is rising, what is
                  happening on the margin must be higher.

          6.
               Other factors affecting consumption and therefore saving include 
              wealth (savings), expectations about personal needs and future
              economic activity, and concerns about consumer, business, and
              government debt.
     B. Investment is business spending on capital goods, inventory, and 
          research & development.
          1. The level of investment is a function of expected profit, interest rates,
              and the level of technology required to maintain a desired competitive
              position.
         2. Investment spending tends to be somewhat volatile.
    C. Government Spending is assumed to be constant. 
    D. Net Exports, exports minus imports, are also assumed to be constant
         for this simplified model.

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Note: Points on a 45-degree line 
equate values on the x and y axes.

The savings decline is not a [problem because developing countries save a substantial amount because unstable political systems mean they need more protection form uncertainty. There precautionary motive is high.
see liquidity-preference