How to Calculate MPC and MPS
MPC = change in consumption ÷ change in income; MPS = change in saving ÷ change in income. MPC + MPS always equals 1.
The MPC & MPS formula
Calculator
Enter the change in income and the change in consumption to get MPC, MPS, and the spending multiplier.
The extra income households receive.
How much of that extra income gets spent. The rest is saved.
Households spend 80% of each extra dollar and save 20%, which gives a spending multiplier of 5.
- Change in saving
- $100
- MPS
- 0.2
- MPC + MPS
- 1
- Spending multiplier (1 ÷ MPS)
- 5
Whatever is not spent out of the extra income is saved.
Every extra dollar is either spent or saved, so this always comes to 1.
How to calculate MPC & MPS, step by step
- 1Find the change in income. ΔY, the extra disposable income households receive.
- 2Find the change in consumption. ΔC, how much of that extra income is spent. MPC = ΔC ÷ ΔY.
- 3Find the change in saving. ΔS = ΔY − ΔC, so MPS = ΔS ÷ ΔY. You can also just compute MPS = 1 − MPC.
- 4Check they sum to 1. Every extra dollar is either spent or saved, so MPC + MPS = 1 always.
Worked example: MPC & MPS
Income rises by $500 and consumption rises by $400: MPC = 400 ÷ 500 = 0.8 and MPS = 100 ÷ 500 = 0.2 (they sum to 1). That MPS gives a spending multiplier of 1 ÷ 0.2 = 5.
MPC & MPS questions
Why do MPC and MPS have to add to 1?
Each extra dollar of disposable income can only go two places, consumption or saving, so the fractions spent and saved must sum to exactly 1.
How do MPC and MPS connect to the multipliers?
Spending multiplier = 1 ÷ MPS and tax multiplier = −MPC ÷ MPS. A higher MPC means more re-spending each round and therefore bigger multipliers.
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