How to Calculate Marginal Propensity to Save

What is the formula for calculating marginal propensity to save?

If i earn an additional $370 in my paycheck, and of the $370 i spend $250, what is my marginal propensity to save?

Formula for Calculating Marginal Propensity to Save

The marginal propensity to save (MPS) is calculated by dividing the amount saved by the additional income earned. In the given scenario, the MPS is $120 divided by $370, which is about 32.43%.

The student has asked how to calculate their marginal propensity to save (MPS) if they earn an additional $370 in their paycheck and spend $250 of that amount. To find the MPS, you first need to identify how much is saved from that additional income. In this scenario, the student did not spend $120 ($370 - $250), which means they saved that amount.

The marginal propensity to save is calculated by dividing the amount saved by the additional income earned. So, the MPS would be $120/$370, which is approximately 0.3243 or 32.43% when expressed as a percentage.

To put it in general terms, MPS can also be understood by knowing that the sum of the MPS and the marginal propensity to consume (MPC) is equal to 1. If we learn that the MPC is, for example, 0.8, it would mean that the household spends 80% of any additional income, and the MPS would be 0.2 or 20%, as the two must add up to 100% or 1.