Marginal propensity to save

The marginal propensity to save (also: marginal propensity to save, marginal rate for savings ) describes the proportion of income that households save an economy in the next few additional ( marginal ) income unit, ie not consume (spend). It is fundamental to the development of the Keynesian model and the total multiplier.

The marginal propensity to save can be derived from the consumption function. In a simple ( model ) economy without government and foreign trade can be the national income represented as follows:

( a), that is, the entire national income () flows to the private sector who consumes it () and save ().

Both the consumption and saving can thus be assumed to be dependent on the national income, that is, that as income increases, consumption also increases:

( b)

Describes the so-called autonomous consumption, which is carried out at an income of zero () ( dissave, such as through the sale of property titles, such as securities or residential property ). At each income increase of one unit of consumption increases by units of currency. Be the marginal propensity to consume, the consumption increases by 0.85 € with any income increase by 1, - €:

The marginal propensity to consume is less than one, ie that an income increase of one euro a share is spent on consumption. The rest is saved because the saving function

( c ) applies.

By substitution of (b ) in ( c ) gives the marginal propensity to save

( d)

Or in other words:

In the example, the marginal propensity to save is so.

• Macroeconomics