-To economists, there really only two things you can do with your money: spend it or save it.
-In other words, Disposable Income = Consumption + Savings
-If your disposable income changes, then your consumption, savings, or a combination of both will change.
-We use the terms marginal propensity to consume and marginal propensity to save to analyze this topic.
-In economics, the word marginal means ‘change in’ or ‘addition to’. Propensity refers to the tendency for something to happen.
-So the marginal propensity to consume/save just refers to how we would alter our spending/savings when our income changes.
-The marginal propensity to consume (MPC) is the rate that consumption will change for a given change in disposable income. In other words, MPC = Change in Consumption / Change in Disposable Income.
-The marginal propensity to save (MPS) is the rate that savings will change for a given change in disposable income. In other words, MPS = Change in Savings / Change in Disposable Income.


All works here are my own and are considered works in progress and may be subject to change at any time. The opinions expressed here are mine only unless otherwise noted. I am not being paid by a third party to endorse a product of any sort. These writings are written for my own references. I do not claim to be a professional of any kind so follow any information you find here at your own risk. The facts that I post on here are things that I believe to be true, but may not necessarily be so. This is the internet; do your own fact checking and take everything with a grain of salt.

Comments are closed.