Marginal Propensity to Consume (MPC) vs Marginal Propensity to Save (MPS)
Marginal Propensity to Consume (MPC) and Marginal Propensity to Save (MPS) are two Aggregate Demand & Supply concepts in AP Economics that students often mix up. In short: marginal propensity to consume (mpc) is the marginal propensity to consume is the fraction of each additional dollar of disposable income that households spend. Meanwhile, marginal propensity to save (mps) is the marginal propensity to save (MPS) is the fraction of each additional dollar of disposable income that households save. Here is how they compare side by side.
The marginal propensity to consume is the fraction of each additional dollar of disposable income that households spend.
It ranges between 0 and 1 and determines the size of the spending multiplier. A higher MPC means more of any new income is re-spent, amplifying changes in aggregate demand. The MPC and the marginal propensity to save (MPS) always sum to 1.
The marginal propensity to save (MPS) is the fraction of each additional dollar of disposable income that households save.
It ranges between 0 and 1 and, together with the marginal propensity to consume, always sums to 1. A higher MPS means a smaller spending multiplier. It measures how much of new income leaks out of the spending stream.
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