The marginal propensity to save (MPS) refers to the increase in saving (non-purchase of current goods and services) that results from an increase in income i.e. The marginal propensity to save might be defined as the proportion of each additional dollar of household income that is used for saving. It is also used as an alternative term for the slope of the saving line. For example, if a household earns one extra dollar, and the marginal propensity to save is 0.35, then of that dollar, the household will spend 65 cents and save 35 cents. It can also go the other way, referring to the decrease in saving that results from a decrease in income.
The MPS plays a central role in Keynesian economics as it quantifies the saving-income relation, which is the flip side of the consumption-income relation, and thus it reflects the fundamental psychological law. Marginal Propensity to Save is also a key variable in determining the value of the multiplier.
Read more about Marginal Propensity To Save: Calculation of MPS, Slope of Saving Line, Multiplier Effect
Famous quotes containing the words marginal, propensity and/or save:
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