My intuition tells me that an increase in interest rates will make saving more attractive and should encourage saving.

But if that is the case, why the MPS( marginal propensity of saving )doesn't include interest rates?

  • $\begingroup$ The MPS is a simplification that is not used in more serious models. However sometimes consumption functions do depend on interest rates even in the most basic IS-LM model which in that case would imply that the savings function exhibits the feature you're describing. $\endgroup$ – BB King Oct 26 '15 at 13:48

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