The Marginal Propensity To Save (MPS) is an economic concept that represents the proportion of additional income that a household saves rather than spends on consumption. It can be expressed mathematically as:
where is the change in savings and is the change in income. For instance, if a household's income increases by $100 and they choose to save $20 of that increase, the MPS would be 0.2 (or 20%). This measure is crucial in understanding consumer behavior and the overall impact of income changes on the economy, as a higher MPS indicates a greater tendency to save, which can influence investment levels and economic growth. In contrast, a lower MPS suggests that consumers are more likely to spend their additional income, potentially stimulating economic activity.
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