B Com Exam > B Com Notes > Macro Economics > MPS, APS, MPC, APC - Macroeconomics
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Marginal Propensity to Consume and Marginal Propensity to Save
The MPC makes up the gradient of the consumption line and the MPS makes up the gradient of the savings line in the consumption function.
Marginal Propensity to Consume
The Marginal Propensity to Consume (MPC) measures the increase in household consumption from an increase in household income.
To calculate MPC:
MPC = (Change in Consumption)/(Change in Disposable Income)
Can you calculate the MPC from the model below?
Answer:
Change in Consumption (Consumer Spending):
= 600-500
= 100
Change in Disposable Income:
= 900-500
= 400
MPC:
= 100/400
= 0.25
Average Propensity to Consume (APC)
Average Propensity to Consume measures the proportion of income spent on consumption.
APC = Total Consumption/Total Disposable Income
Can you find what the APC is from figure 1?
Answer:
Total Consumption = 600
Total Disposable Income = 900
APC
= 600/900
= 0.67
Note: As income increases, the APC decreases.
Marginal Propensity to Save
Marginal Propensity to Save (MPS) measures the increase in savings from a given increase in household income.
MPS = (Change in Savings)/(Change in Disposable Income) OR MPS = 1 - MPC
Can you find what the MPS is from figure 2?
Answer:
Method 1 - Find MPC
Change in Consumption
= 625-500
= 125
Change in Disposable Income
= 1000-500
= 500
MPC = 125/500
= 0.25
MPS = 1 -0.25
= 0.75
Method 2 - Find MPS
Change in Savings
= 375 - 0 (Note: the savings level at a disposable income of 500 is 0)
= 375
Change in Disposable Income
= 1000-500
= 500
MPS = 375/500
= 0.75
Average Propensity to Save (APS)
Average Propensity to Save (APS) measures the total proportion of income that is saved.
APS = Total Savings/ Total Income
Can you find the APS of figure 2?
Answer:
Total Savings = 375
Total Income = 1000
APS = 375/1000
= 0.375
Note: As income increases, the APS increases.
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FAQs on MPS, APS, MPC, APC - Macroeconomics - Macro Economics - B Com
| 1. What is the meaning of MPS in macroeconomics? |  |
Ans. MPS stands for Marginal Propensity to Save in macroeconomics. It measures the change in saving resulting from a change in income. It indicates the proportion of additional income that individuals save rather than spend.
| 2. What is the significance of APS in macroeconomics? | |
Ans. APS refers to Average Propensity to Save in macroeconomics. It is the ratio of total saving to total income. APS helps in understanding the saving behavior of individuals or households in an economy.
| 3. How is MPC calculated in macroeconomics? | |
Ans. MPC stands for Marginal Propensity to Consume in macroeconomics. It is calculated as the change in consumption divided by the change in income. MPC measures the proportion of additional income that individuals spend rather than save.
| 4. What does APC represent in macroeconomics? | |
Ans. APC stands for Average Propensity to Consume in macroeconomics. It is calculated as the ratio of total consumption to total income. APC indicates the proportion of total income that individuals or households spend on consumption.
| 5. How do MPS and APC relate to each other in macroeconomics? | |
Ans. MPS and APC are related to each other in macroeconomics. The sum of MPS and APC always equals 1. This means that any change in income is either saved (MPS) or consumed (APC). As one increases, the other decreases, and vice versa.
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