MPS could be calculated by taking the ratio consumption expenditure/ disposal income away from 1? is it true?

Asked on by sammy7189

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

I am not quite clear on what you mean by this, so I will show you how I know to calculate the marginal propensity to save.  MPS is defined as how much of the "next" dollar a person gets will be saved.  Here is the correct way of calculating this:

What you have to do to calculate MPS is to look at the relationship between income and saving.  The actual formula is that MPS = change in saving / change in income.

So, if I get one more dollar and I save $.75 of it, the calculation is MPS = .75 / 1.  In that case, my MPS is .75.

Now that I think about it more, I think what you are saying is correct.  I think you are asking if this equation would be true:

1- (change in spending/change in income) = MPS.

In our example above, this would be

1- (.25/1) = MPS

1 - .25 = MPS and MPS = .75

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