Question

Give the meanings of average propensity to save' and 'marginal propensity to save'. How are they calculated?

Answer 1

APS refers to Average Propensity to Save which defines the amount of savings in every 1 rupee of income for all levels of income.

APS= Savings/ Income = S/Y

Marginal Propensity to save refers to the percentage change in savings for every one rupee of change in the income. It is the ratio between the change in income and correspondent change in savings

MPS= change in savings/ change in income= ^S/^Y