ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Marginal propensity to save (MPS) is an economic measure of how savings change, given a change in income. It is calculated by simply dividing the change in savings by the change in income. A larger MPS indicates that small changes in income lead to large changes in savings, and vice-versa.

Detailed explanation-2: -The average propensity to save equals the ratio of total saving to total income; the marginal propensity to save equals the ratio of a change in saving to a change in income. The sum of the propensity to consume and the propensity to save always equals one (see propensity to consume).

Detailed explanation-3: -Typically, the higher the income, the higher the MPS, because as wealth increases, so does the ability to satisfy needs and wants, and so each additional dollar is less likely to go toward additional spending.

Detailed explanation-4: -The ratio of total consumption to total income is known as the average propensity to consume; an increase in consumption caused by an addition to income divided by that increase in income is known as the marginal propensity to consume.

Detailed explanation-5: -MPC and Economic Policy Typically, the higher the income, the lower the MPC because as income increases more of a person’s wants and needs become satisfied; as a result, they save more instead.