Propensity To Save
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Propensity To Save
The average propensity to save (APS) and the marginal propensity to save (MPS) are related to income in a way similar to APC and MPC. The average propensity to save (APS) is the ratio of total savings (S) to total income (Y). In the example on APC, the economy spent Rs. 80,000 crores on consumption. Since income not consumed is income saved, so total saving at the income level of Rs. 100,000 crores in this case is Rs.20, 000 crores. Thus, APS can be computed as follows.APS = Total Saving/Total Income = S/Y = Rs. 20,000 crores/Rs.100,000 crores = 0.2 or 20%
Since income is either consumed or saved
C+S = Y
⇒ C/Y + S/Y = Y/Y
Or, APC + APS = 1
In our example, APC = 0.8 and APS = 0.2. So, APC + APS = 0.8 + 0.2 =1. Since, the sum of APC and APS is 1 at all income levels, it is possible to find APC or APS as the case may be if the other is given.
APC = 1-APS, and
APS = 1- APC
The marginal propensity to save (MPS) is the ratio of the change in total saving to the change in total income. Symbolically,
MPS = Change in Saving
Change in Income
= ΔS
ΔY
If Rs. 1,000 crores increase in income leads to an increase in saving by Rs. 100 crores, the marginal propensity to consume would be Rs. 100 ÷ Rs. 1,000 or 0.1 or 10%
Since , C+S =Y
So, ΔC+ΔS = ΔY
=> ΔC + ΔS = ΔY
ΔY + ΔY = ΔY
Or, MPC + MPS = 1
Again, the sum of MPC and MPS is always equal to one at all levels of income, since the total increment in the national income of a country is either used for consumption or saved.
Therefore,
MPC = 1-MPS, and
MPS = 1- MPC
Table 3.2 shows the computations of APC, APS, MPC and MPS. Their inter relationships can also be verified through this table.
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