Select the correct formula to calculate the value of Marginal Propensity to Save (MPS) :
I. Change in Savings (ΔS) / Change in Consumption (ΔC)
II. Change in Savings (ΔS) / Change in Income (ΔY)
III. 1 – Marginal Propensity to Consume (MPC)
IV. Change in Income (ΔY) / Change in Savings (ΔS)
Select the correct formula to calculate the value of Marginal Propensity to Save (MPS) :
I. Change in Savings (ΔS) / Change in Consumption (ΔC)
II. Change in Savings (ΔS) / Change in Income (ΔY)
III. 1 – Marginal Propensity to Consume (MPC)
IV. Change in Income (ΔY) / Change in Savings (ΔS)
Show Hint
- I, II, III and IV
- II and III
- Only III
- Only II
The Correct Option is B
Solution and Explanation
MPS is the change in saving that comes from a change in income.
So MPS = Change in Savings / Change in Income = delta S / delta Y.
Step 2: Check formula I:
It divides saving by consumption: delta S / delta C. This is not MPS. So I is wrong.
Step 3: Check formula II:
It is delta S / delta Y, the definition of MPS. So II is right.
Step 4: Check formula III:
Income is either consumed or saved, so MPC + MPS = 1. Hence MPS = 1 - MPC. So III is right.
Step 5: Check formula IV:
It is delta Y / delta S, the reciprocal of MPS. It is the value of the multiplier, 1 / MPS, not MPS itself. So IV is wrong.
Step 6: Pick the option:
Correct formulas are II and III only. This is option (B).
(A) includes I and IV, which are wrong. (C) leaves out II. (D) leaves out III.
Final Answer:
MPS = delta S / delta Y = 1 - MPC. The correct option is (B), II and III.
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