What is MPS?
MPS means Marginal Propensity to Save
It is ratio of Change in Saving to Change in Income
MPS = Change in Savings /Change in Income
= Delta S /Delta Y
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Important Points about MPS
Value of MPS is normally between 0 and 1
It remains same irrespective of level of income
What happens when MPS is 0?
If MPC is 0, it means person is not saving additional income
Example
A person earned income of 40000 out of which he spent 30000 on consumption and saving 10000
A person's income increases from 40000 to 50000
However his consumption also increased to 40000 and saving remains 10000
Calculate MPS
Ans
Change in Savings = 0
Change in Income = 50000 - 40000 = 10000
MPS = Change in Consumption/ Change in Income
= 0/10000
= 0
What happens when MPS = 1?
It means person is saving all of his additional income
Example 1
A person earned income of 40000 out of which he spent 30000 on consumption and saving 10000
A person's income increases from 40000 to 50000
However his consumption remained 30000 and saving became 20000
Answer:
Change in Savings = 20000 - 10000 = 10000
Change in Income = 50000 - 40000 = 10000
MPS = Change in Savings/Change in Income
= 10000/10000
= 1
Why can't MPS be more than 1?
If it is more than 1, it means person is saving more than his additional income
It can happen only if person's consumption exp decrease
Example
Person earns 10000 extra income but he saves 11000 extra
MPS = Change in Savings/Change in Income = 11000/ 10000 = 1.1
This is not possible
How to show MPS in Graph
On X Axis, We represent Income
On Y Axis, We Represent Savings
It can be seen that
Savings Curve is Positively Sloping
However, it stats at Point S which is below the origin
Taking any 2 points on Savings curve, we can calculate MPS
We take points A and B
At Point A, Savings Level is P and Income level is Y2
At Point B, Savings Level is R and Income level is Y2
MPS = Change in Consumption/Change in Income
= PR/ Y1Y2
NCERT Questions
No questions in this part
Other Books
Question 1
State the difference between APS and MPS.
View Answer| APS | MPS | |
| It is the ratio of savings to corresponding level of income at given point of time |
It is the ratio of change in savings to corresponding change level of income |
|
| APS = S/Y | MPS= Delta S/Delta Y | |
| It increases with increase in income | It remains constant and do not change with change in income | |
| APS lies between 1 and -1 | MPS is between 0 and 1 | |
| It can be 0 or negative | It can't be negative | |
