The marginal propensity to save is
A) total saving divided by total disposable income.
B) total saving divided by the change in disposable income.
C) the change in saving divided by the change in disposable income.
D) the change in saving divided by the change in consumption expenditure.

Question

Quizplus · Accepted Answer

The marginal propensity to save (MPS) measures the proportion of additional income that is saved, given a change in disposable income. Therefore, the correct formula for MPS is the change in saving divided by the change in disposable income. Choice A is incorrect because it calculates the average propensity to save, which is the total saving divided by the total disposable income, not the additional saving given a change in income. Choice B is incorrect because it would give us the average propensity to save, not the marginal propensity to save. Choice D is incorrect because, while it does involve changes in saving and consumption expenditure, it doesn't directly capture the impact of additional disposable income on saving behavior.

The Marginal Propensity to Save Is