Calculation of Average Propensity to Save (APS) and Marginal Propensity to Save (MPS)

Calculation of Average Propensity to Save (APS) and Marginal Propensity to Save (MPS)!

Average propensity to save (APS):

The ratio of total saving to total income is called APS. Alternatively, it is that part of total income which is saved.

By dividing total saving (S) with total income (Y), we get APS.

Symbolically:

APS = S/Y

For instance, in the following table when national income is Rs 200 crore, saving is Rs 30 crore. In this case APS = SA’ = 30/200 = 0.15 or 15%.

Numerical Sum:

If disposable income is Rs 1,000 and consumption expenditure is Rs 750, find out APS.

Ans. APS = S/Y = 250 (=1,000 – 750)/ 1,000 = ¼ = 0.25 or 25%

Marginal propensity to save (MPS):

MPS is the ratio of change in saving (AS) to change in income (AY). It is that part of additional income which is saved. In other words, it is a measure of additional saving as proportion of additional (incremental) income. MPS is worked out by dividing change in saving (AS) with the corresponding change in income (AY).

Symbolically:

MPS= ∆S/∆Y

For instance, in the following table, when national income goes up from Rs 100 crore to Rs 200 crore, saving also goes up from zero to Rs 30 crore.

In this case, MPS = ∆S/∆Y = 30/100 = 0.3 or 30%

Value of MPS lies always between 0 and 1:

Its reason is if additional income is entirely consumed, then there is no saving making MPS = 0. If entire additional income is saved, then MPS = 1 In short, 0 < MPS < 1.