What does the marginal propensity to save (MPS) indicate?

The marginal propensity to save (MPS) refers specifically to the proportion of any additional income that is saved rather than spent on consumption. It quantifies how much saving will increase when income rises by one additional dollar. For example, if the MPS is 0.2, it indicates that for every extra dollar earned, 20 cents will be saved, while the remaining 80 cents will be spent.

This concept is significant in understanding consumer behavior in relation to income changes, which can influence economic policies and forecasting. By focusing on how individuals alter their saving habits with changes in income, MPS helps economists predict future consumption and saving trends within the economy.

Other options might imply different aspects of saving that do not capture the specific focus of MPS. The total amount saved across the economy (A) pertains more to aggregate savings rather than individual behavior concerning additional income. The average savings rate across different income levels (C) refers to overall savings habits across a range of income brackets, rather than the incremental effects of changes in income. The impact of savings on consumer spending (D) looks at the broader relationship between saving and spending but does not pinpoint the proportion of change attributable to new income. Hence, the focus on additional income and its direct