Marginal Propensity to Save (MPS)

Overview

Marginal propensity to save (MPS) measures the fraction of an incremental increase in income that a consumer saves rather than spends. It is a core concept in Keynesian macroeconomics used to analyze consumption behavior and the broader effects of fiscal policy.

Definition and formula

MPS = Change in saving ÷ Change in income
(MPS is often shown graphically as the slope of a savings line: change in savings on the vertical axis vs. change in income on the horizontal axis.)

Typical values for MPS lie between 0 and 1 (most additional income is either spent or saved), and MPS + MPC = 1, where MPC is the marginal propensity to consume.

Key takeaways

• MPS is the share of any additional dollar of income that is saved.
• MPS varies by income level—higher-income households generally have higher MPS.
• MPS helps determine the size of the Keynesian multiplier, which indicates how changes in spending affect total economic output.

Example

If you receive a $500 bonus and save $100 while spending $400:
* MPS = $100 ÷ $500 = 0.2
* MPC = $400 ÷ $500 = 0.8
MPC + MPS = 0.8 + 0.2 = 1.

Relationship with the multiplier

The expenditures (or fiscal) multiplier shows how a change in spending translates into a larger change in aggregate output:
Multiplier = 1 ÷ MPS

A smaller MPS implies a larger multiplier (because more of any additional income is spent, generating further rounds of consumption), while a larger MPS reduces the multiplier effect.

Example: If MPS = 0.2, the multiplier = 1 ÷ 0.2 = 5.

How MPS varies and why it matters

• Income level: As income rises and basic needs are met, households tend to save a higher share of additional income, increasing MPS.
• Preferences and expectations: Future income expectations, access to credit, and cultural attitudes toward saving affect MPS.
• Policy implications: Knowing typical MPS values helps economists and policymakers estimate how effective fiscal stimulus or tax changes will be in boosting aggregate demand.

Bottom line

MPS quantifies how much of an income increase is saved and is a simple but powerful tool for understanding consumer behavior and the broader macroeconomic impact of fiscal actions. Its complement, MPC, and the derived multiplier are central to evaluations of economic stimulus effectiveness.