The marginal propensity to save is the ratio of change in saving to change in income. It is found out by the formula
MPS = ΔS / ΔY
where MPS = marginal Propensity to save
ΔS = Change in saving
ΔY = change in income.
When MPC is constant MPS will also be constant. However, when MPC is declining, MPS shall be rising. This is because when continuously smaller proportion of additional income is being consumed, it logically means that a rising portion of additional income is being saved. Thus, when MPC is low, MPS is high.
Whether the Marginal Propensity to Save is constant or not will depend upon the behavior or Marginal propensity to Consume. If the marginal Propensity to consume is constant at all levels of income, the marginal Propensity to save will also be constant. But when the marginal propensity to consume declines with successive increments of income, the marginal propensity to save will be rising. A declining MPC shows that a relatively smaller portion of additional income is being used for consumption. Obviously, then the portion of income saved must be rising. Thus, when MPC is low , MPS is high. When MPC is declining, MPS is rising.SUBMIT ASSIGNMENT NOW!