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Today I learned about MPS (Marginal Propensity to Save) prepared for tomorrow's Olympiad
WORTH!!
Calculation of MPS
MPS can be calculated as the change in savings divided by the change in income.
Or mathematically, the marginal propensity to save (MPS) function is
expressed as the derivative of the savings (S) function with respect to disposable income (Y).
where, dS=Change in Savings and dY=Change in income.
An example
-
-
|
Savings |
Income |
| A |
200 |
1000 |
| B |
400 |
1500 |
Now, MPS can be calculated as follows:
- Change in savings = (400-200) = 200
- Change in income = (1500-1000) = 500
MPS = (Change in savings) / (Change in income)
- so, MPS = 200/500 = 0.4
This implies that for each additional one unit of income, the savings increase by 0.4.
There are different implications of this above-mentioned formula.
First it quantifies induced savings.Induced saving is the portion of saving that responds to changes in income.
In other words, induced saving can be defined as the household saving
that depends on income or production (especially disposable income,
national income, or even gross domestic product)
Second, it is a measure of slope of the savings function.
Value of MPS
Since MPS is measured as ratio of change in savings to change in income, its value lies between 0 and 1.Also, marginal propensity to save is opposite of marginal propensity to consume.
Mathematically, In a closed economy, MPS + MPC = 1 since an increase in one unit of income will be either consumed or saved.
In the above example, If MPS = 0.4, then MPC = 1 - 0.4 = 0.6.
Generally, it is assumed that value of marginal propensity to save
for the richer is more than the marginal propensity to save for the
poorer. If income increases for both parties by $1, then the propensity
to save for a richer person would be more than that for the poorer
person.
This is materials are from Internet I hope you guys can learn it as well..
And it's last year to join the economic Olympiad remembering that i am in the second year of senior high now, so i use this very oppurtunity very well. Support in pray, guys!! Love ya!
