Marginal propensity to save

The marginal propensity to save (MPS) is the fraction of an increase in income that is not spent and instead used for saving. It is the slope of the line plotting saving against income.[1] For example, if a household earns one extra dollar, and the marginal propensity to save is 0.35, then of that dollar, the household will spend 65 cents and save 35 cents. Likewise, it is the fractional decrease in saving that results from a decrease in income.

The MPS plays a central role in Keynesian economics as it quantifies the saving-income relation, which is the flip side of the consumption-income relation, and according to Keynes it reflects the fundamental psychological law. The marginal propensity to save is also a key variable in determining the value of the multiplier.

References

  1. ^Blanchard, O. (2006). Macroeconomics. (Fourth ed., p. 59). Pearson Education Inc.
  2. ^Robert Marks, “Macroeconomics for manager”, Lecture Series, March 1997, Australian Graduate School of Management, University of New South Wales
  3. ^“Induced Savings”, AmosWEB LLC, Economic WEB*pedia,2010-2011.[Accessed: November 8, 2011] Web.
  4. ^Blanchard, O. (2006). Macroeconomics. (Fourth ed., p. 59). Pearson Education Inc.
  5. ^Chamberlin, G., & Yeuh, L. (2006). Macroeconomics. (p. 23). Italy: Thomson Learning Inc.
  6. ^Ahuja, H. L. (2008). Macroeconomics : Theories and policies. (14th ed., pp. 125-126). Delhi: S.Chand and Co. Ltd.
  7. ^Carroll, C. (2000) Why do the rich save so much, in Does Atlas Shrug? Economic Consequences of Taxing the Rich, Slemrod, J. (Ed.), Cambridge University Press, London.
  8. ^Froyan, R. T. (2005). Macroeconomics : Theories and policies. (Eighth ed., p. 123,130). Pearson Education Inc. Pvt. Ltd. and Dorling Kindersley Publishing Inc.
  9. ^Dwivedi, D. N. (2005). Macroeconomics: Theory and policy. (2nd ed., p. 73). New York: Tata McGraw-Hill Publishing Co. Ltd.
  10. ^Dornbusch, R., Fischer, S., & Startz, R. (2004). Macroeconomics. (Ninth ed., pp. 217,221-23). New York: Tata McGraw-Hill Publishing Co. Ltd.
  11. ^http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=marginal%20propensity%20to%20save
  12. ^Chamberlin, G., & Yeuh, L. (2006). Macroeconomics. (p. 23). Italy: Thomson Learning Inc.

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