Definition – What is marginal propensity to save?
MPS is the amount that savings will increase (or decrease) for every increase (or decrease) in disposable income.
When income increases, those who benefit from it have a choice to either save or spend. If they save (instead of spend) 40% of their increase in income, their MPS would be 0.4 (and their MPC, marginal propensity to consume, would be 0.6).
Formula – How to calculate MPS
Marginal Propensity to Save = Change in Savings / Change in Income
Change in savings is $600 and change in income is $1500.
MPS = $600 / $1500 = 0.4
Therefore, MPS is 0.4.
Sources and more resources
- Wikipedia – Marginal Propensity to Save – An overview of marginal propensity to save including formulas.
- Houston Chronicle – The Relationship Between Marginal Propensity to Consume & Marginal Propensity to Save – A short article how MPC and MPS are linked.
- ACDCLeadership (YouTube) – Macro 3.9 – Multiplier Effect, MPC, and MPS (Macroeconomics) – A video describing the Marginal Propensity to Save.