Published Oct 25, 2023 The Marginal Propensity to Save (MPS) is a measure that indicates how much of an additional dollar of income will be saved instead of spent. In other words, it represents the proportion of a change in income that is saved rather than consumed or invested. Let’s say someone receives a bonus of $1,000. If this person decides to save $200 of that bonus and spend $800, the Marginal Propensity to Save would be 0.2, or 20%. This means that for every additional dollar of income received, they save 20 cents. It is important to note that the Marginal Propensity to Save can vary among individuals and households. Factors such as income level, financial goals, and personal preferences can influence someone’s propensity to save. Understanding the Marginal Propensity to Save is essential for policymakers and economists as it helps in analyzing the impact of changes in income on saving behavior. It provides insights into how individuals and households allocate their additional income between saving and spending. Additionally, the Marginal Propensity to Save plays a vital role in economic models and calculations related to fiscal policy. It helps estimate the potential impact of changes in government spending or taxes on saving and consumption patterns, which can have broader implications for economic growth and stability.Definition of Marginal Propensity to Save (MPS)
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Why Marginal Propensity to Save Matters
Economics