How the MPS Calculator works
The marginal propensity to save (MPS) is a core Keynesian economics measure of how a household, or an economy as a whole, splits an extra dollar of income between saving and spending. This calculator computes MPS directly from a change in income and a change in savings, and then derives the related marginal propensity to consume (MPC) and the simple spending multiplier.
The formula
For an initial income Y1 and new income Y2, and initial savings S1 and new savings S2, the change in income is ΔY = Y2 − Y1 and the change in savings is ΔS = S2 − S1. The marginal propensity to save is:
MPS = ΔS / ΔY
Because the simple model assumes every extra dollar of income is either saved or spent, the marginal propensity to consume follows as MPC = 1 − MPS, and the implied change in consumption is ΔC = ΔY − ΔS. The simple spending multiplier, which estimates how a change in autonomous spending scales up through the economy in a model with no taxes or imports, is multiplier = 1 / MPS.
Worked example
Suppose income rises from $50,000 to $60,000 (ΔY = $10,000) and savings rise from $5,000 to $8,000 (ΔS = $3,000). Then MPS = 3,000 / 10,000 = 0.30, so 30% of the extra income was saved. MPC = 1 − 0.30 = 0.70, meaning 70% of the extra income, or $7,000, went to consumption. The spending multiplier is 1 / 0.30 ≈ 3.33.
What moves MPS
- Income growth versus savings growth: if savings grow faster than income, MPS rises toward 1; if savings barely move while income grows, MPS falls toward 0.
- Lower-income households typically show a lower MPS (they spend most of any extra income) than higher-income households, which can save a larger share.
- A higher MPS shrinks the spending multiplier: more leakage into saving means a smaller multiplied effect from any given change in spending.
Limits of this simple model
This is the basic closed-economy Keynesian relationship: it ignores taxes, imports, and any change in investment or government spending that might accompany the income change. Real economies have additional leakages (taxes, imports) that lower the actual multiplier below the simple 1/MPS figure. Treat the result as a standard textbook estimate, not a forecast of actual GDP impact.