In this lecture, We are going to discuss what is propensity to save, its types as per the syllabus of Macro-Economics class 12 CBSE Board.
we will also discuss what is Average propensity to save and, marginal propensity to save, their formulas, and maximum and minimum values too.
What is Propensity to Save and its definition?
Propensity to save is the proportion of income saved.
Types of Propensity to Save
There are two types of propensity to save.
What is Average propensity to save (APS)
When the proportion of income saved is expressed as a ratio between total saving to total income. It is termed as Average propensity to Save (APS).
Formula of Average Propensity to save
APS = Total Savings/Total Income = S/Y
The Different Values of APS
- The value of APS can be negative. As at a very low level of income. there is minimum consumption of servival. It results in negative savings.
- The value of APS can be Zero. As, it is possible whole income is spent on consumption. It results in zero savings.
- The value of APS can be less than one. As, it is possible consumption is less than income. It results in savings that is less than income.
- The value of APS can not be equal to one. As, it is not possible to save entire income. There is always a some consumption out of income.
- The value of APS can not be more than 1. As, it is not possible to save more than income.
What is Marginal Propensity to Save
The ratio (proportion) of change in savings to change in income, is called Marginal Propensity to save (MPS).
Formula of Marginal Propensity to Save
MPS = Change in Savings/Change in income
Different Values of Marginal Propensity to save
- The value of marginal propensity to save can not be more than 1. As, the consumer can not save more than increase in income.
- The value of marginal propensity to save can not be negative. As there can not be negative savings with respect to increase and decrease in income.
- The value of MPS can be zero. As, it is possible whole increase in income is consumed.
- The value of MPS can be less than 1, As, it is possible increase in saving is less than with respect to increase in income.
- The value of MPS can be equal to 1. As, it is possible increase in saving is equal to increase in income.
Hence it is concluded, the value of MPC lies between 0 to 1. That can be represented as 0 ≤ MPS ≥ 1.