How to Calculate Marginal Prosperity

MPS and MPC show the changes in the nation's economic trends.

There are two important economic concepts: the marginal propensity to consume and the marginal propensity to save. Both the concepts are inverses of one another. The marginal propensity to consume (MPC) calculates the additional amounts of money that consumers are spending and siphoning back into the economy. The marginal propensity to save (MPS) refers to the additional income that consumers are saving instead of spending. Economists compute MPC and MPS to ascertain the rates of change.

Instructions

Marginal Propensity to Consume (MPC)

1. Calculate the change in this year's disposable income in comparison to last year's income. This will give you the difference in the disposable income available amongst the consumers. If the income increased, the difference figure would be positive. If the disposable income decreased, the figure would be negative.

2. Calculate the change in consumption from last year to this year. Calculate this for different sectors of the economy. This way, you would see the changes in consumption patterns across different sectors.

3. Divide the amount of change in consumption by the amount of change in disposable income. This would give you the marginal propensity to consume.

Marginal Propensity to Save (MPS)

1. Calculate the amount of change in savings. For that, subtract the savings at the beginning of the year from the savings at the end of the year. A positive figure indicates that the amount of savings in the past year went up. A negative figure means that the level of savings went down.

2. Calculate the change in disposable income. Subtract last year's figure of disposable income from this year's year, noting a change in the levels.

3. Divide the change in level of savings by the level of change in disposable income to get the marginal propensity to save (MPS).

Tips & Warnings

• The result of adding MPC and MPS should always be equal to one. If the resultant figure is not equal to one, there is an error in the computation.

References

• Amos Web: Marginal Propensity to Consume
• Business Dictionary: Marginal Propensity to Consume
• Amos Web: Marginal Propensity to Save
• Business Dictionary: Marginal Propensity to Save