What Is the Marginal Propensity to Save?
The Marginal Propensity to Save (MPS) measures the proportion of an increase in income that a household or economy chooses to save rather than spend. It is a core concept in Keynesian economics and is used to understand consumption patterns, the spending multiplier, and how income shocks ripple through an economy.
How to Use This Calculator
Enter the change in savings (ΔSavings) and the change in income (ΔIncome) over the same period. The calculator divides the two to give the MPS, and also reports the Marginal Propensity to Consume (MPC), which is simply 1 − MPS. Both values are usually between 0 and 1.
The Formula Explained
$$\text{MPS} = \frac{\Delta \text{Savings}}{\Delta \text{Income}}$$ Because any extra dollar of income is either saved or spent, \(\text{MPS} + \text{MPC} = 1\). So if households save 25 cents of every extra dollar, their MPS is 0.25 and their MPC is 0.75. A higher MPS means people save more of new income, which reduces the size of the fiscal multiplier.
Worked Example
Suppose a household's income rises by $1,000 and its savings increase by $200. Then $$\text{MPS} = \frac{200}{1{,}000} = 0.20.$$ This means 20% of the extra income is saved, while the remaining \(\text{MPC} = 1 - 0.20 = 0.80\) (80%) is consumed.
FAQ
Can MPS be greater than 1? Normally no — you cannot save more than your additional income. A value above 1 usually signals a data error or that consumption fell.
What is the relationship between MPS and the multiplier? The simple spending multiplier equals \(1 \div \text{MPS}\). A lower MPS produces a larger multiplier.
Is MPS the same as the savings rate? No. The savings rate is total savings divided by total income; MPS measures only the change in savings relative to the change in income.
