Question

What is the formula for elasticity of savings with respect to interest rates?

Short answer

The elasticity of savings with respect to interest rates is the percentage variation in the quantity of savings divided by the percentage variation in interest rates.

Step-by-step solution

Step 1. Definition:

The form of the supply curve for financial capital in markets for financial capital is determined by the elasticity of savings—that is, the percentage variation in the quantity of savings divided by the percentage variation in interest rates.

Step 2. Formula:

The elasticity of savings with respect to interest rates is computed using the following formula:

$\mathrm{Interest}\mathrm{rate}\mathrm{elasticity}\mathrm{of}\mathrm{savings}=\frac{\%\mathrm{change}\mathrm{in}\mathrm{quantity}\mathrm{of}\mathrm{savings}}{\%\mathrm{change}\mathrm{in}\mathrm{interest}\mathrm{rate}}$