The Marginal Propensity to Save (MPS) measures the portion of each extra unit of income that households choose to save instead of spending it on goods and services.

Formula: MPS = Change in savings / Change in income (ΔS / ΔY)

Key features:

• MPS is a main factor in the multiplier effect: a higher MPS means more money is saved rather than spent, which makes the economic multiplier smaller.
• MPS + MPC = 1: Since income can only be either saved or spent (Marginal Propensity to Consume), these two values must add up to one.
• In the short term, MPS is usually stable, meaning households save a consistent share of their extra income.
• If people decide to save more (a higher MPS), it can make expansionary fiscal policy less effective because less money flows back into the economy.
• MPS is a fundamental concept in the Keynesian economic model used to understand how national income is determined.