Marginal Propensity to Save (MPS) Calculator

What is the Marginal Propensity to Save?

The Marginal Propensity to Save (MPS) measures the proportion of an additional dollar of disposable income that a household saves rather than spends on consumption. It is a fundamental concept in Keynesian economics that complements the Marginal Propensity to Consume (MPC) and helps economists understand how changes in income affect saving behavior across the economy.

MPS is expressed as a value between 0 and 1. An MPS of 0.2 means that for every extra dollar of disposable income, households save 20 cents and spend the remaining 80 cents. The MPS and MPC always sum to 1, since every additional dollar of income is either spent or saved.

MPS Formula

The basic formula for calculating the marginal propensity to save is:

MPS = Δs / Δyd

Where Δs is the change in household savings and Δyd is the change in disposable income.

Since MPS and MPC are complementary, you can also calculate MPS from the MPC:

MPS = 1 − MPC

For example, if a family saves $200 when their disposable income increases by $1,000, the MPS equals 200/1000 = 0.2. This means they save 20% of each additional dollar earned.

How to Use the MPS Calculator

Enter the increase in disposable income and the corresponding increase in consumer savings. The calculator will instantly compute the MPS value along with the derived MPC and spending multiplier.

Increase in Disposable Income: The amount by which income has risen.
Increase in Consumer Savings: How much savings changed as a result.

Why MPS Matters in Macroeconomics

MPS is a crucial parameter in macroeconomic policy and the Keynesian multiplier framework. A higher MPS means households are saving more of their additional income, which reduces the multiplier effect of fiscal stimulus. The spending multiplier is calculated as 1/(1-MPC) or 1/MPS. An MPS of 0.2 produces a multiplier of 5, meaning each dollar of new spending generates $5 of total economic output through successive rounds of consumption.

The paradox of thrift illustrates a counterintuitive consequence of high MPS: while saving is beneficial for individual households, if everyone in the economy increases their savings simultaneously, aggregate demand falls, leading to lower overall income and potentially lower total savings. This concept has been linked to the debt-deflation theory of economic crises, particularly during the Great Recession.

Related Calculators

MPC Calculator — Calculate the marginal propensity to consume, the complement of MPS.

Frequently Asked Questions

What is the difference between MPS and MPC?

MPS (Marginal Propensity to Save) and MPC (Marginal Propensity to Consume) are complementary concepts that always sum to 1. MPS measures the fraction of additional income that is saved, while MPC measures the fraction that is spent. If MPS is 0.3, then MPC is 0.7 meaning 30% is saved and 70% is spent.

What is a typical MPS value?

MPS varies by income level and economic conditions. In developed economies, MPS typically ranges between 0.1 and 0.4. Higher-income households tend to have higher MPS because they can afford to save a larger share of additional income after meeting their consumption needs. During economic uncertainty, MPS tends to rise as households become more cautious.

How is MPS related to the spending multiplier?

The spending multiplier equals 1/MPS or equivalently 1/(1-MPC). A higher MPS produces a smaller multiplier because less of each dollar of income is re-spent in the economy. For example, an MPS of 0.25 gives a multiplier of 4, while an MPS of 0.1 gives a multiplier of 10.

Can MPS be negative or greater than 1?

MPS is almost always between 0 and 1 in practice. A negative MPS would mean savings decrease when income increases, which is possible short-term if households use rising income to pay down debt. An MPS greater than 1 would mean savings increase by more than the income increase, which would require a negative MPC (spending less when earning more), a very unusual scenario.

What is the paradox of thrift?

The paradox of thrift, introduced by John Maynard Keynes, describes a situation where increased saving at the macroeconomic level can be harmful to the economy. While saving is prudent for individuals, if everyone saves more, aggregate demand falls, leading to lower production, lower income, and potentially lower total savings. This paradox highlights why MPS is an important consideration in economic policy.

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