What Is the Marginal Propensity to Save (MPS)?

Business & Management
#1

The marginal propensity to save (MPS) is the percentage of an increase in income that a consumer saves rather than spends on goods and services, according to Keynesian economic theory. To put it another way, the marginal propensity to save is the percentage of extra income that is saved rather than spent.
MPS is computed as the change in savings divided by the change in income, or as the complement of the marginal propensity to consume, and is a component of Keynesian macroeconomic theory (MPC).
A savings line is a slanted line produced by the graphing change in savings on the vertical y-axis and change in income on the horizontal x-axis to represent MPS.

#2

Marginal propensity to save (MPS) is the amount of additional saving caused by a increase in $1 disposable income.

Let us look at the savings function to explain the same.

Savings function relates the level of savings to the level of income.

Savings (S) = Income (Y) - Consumption (C)

S = Y - C

Consumption function is defined as

C = C’ + cY

Consumption is expected to increase with income and hence the function is written as above.