Marginal propensity to save (MPS) is the fraction of each additional dollar of disposable income that households save rather than spend; it equals 1 − MPC and determines the spending multiplier (1/MPS) in AP Macro Topic 3.2.
Marginal propensity to save (MPS) answers a simple question. If you hand a household one more dollar of disposable income, how much of it do they tuck away instead of spending? If they save 20 cents of every extra dollar, MPS = 0.2. Because every extra dollar is either spent or saved, MPC + MPS = 1, always. Get one and you instantly have the other.
In the AP Macro CED (learning objective 3.2.A), you have to define MPS alongside the marginal propensity to consume, the expenditure multiplier, and the tax multiplier. Here's the intuition that makes the whole topic click. MPS is the leak in the multiplier process. When the government spends $1, that dollar becomes someone's income, they spend most of it, that becomes someone else's income, and so on. Saving is where dollars drip out of that chain. A bigger MPS means a bigger leak each round, so the multiplier is smaller. That's why the spending multiplier is literally 1/MPS.
MPS lives in Topic 3.2 (Spending and Tax Multipliers) in Unit 3, National Income and Price Determination. It directly supports learning objective 3.2.A (define MPS, MPC, and the multipliers) and feeds into 3.2.B and 3.2.C, where you explain and calculate how changes in spending and taxes change real GDP. Per the essential knowledge (EK MOD-2.B.4), both multipliers depend on the MPC, and since MPS = 1 − MPC, knowing the MPS is just as good. This is one of the most calculation-heavy ideas in the course, and it comes back in Unit 5 whenever fiscal policy questions ask you to size a spending or tax change to close an output gap.
Keep studying AP® Macroeconomics Unit 3
Expenditure Multiplier (Unit 3)
The spending multiplier is 1/MPS. If MPS = 0.25, every $1 of new autonomous spending ultimately generates $4 of GDP. The smaller the leak into savings, the more times each dollar gets re-spent.
Tax Multiplier (Unit 3)
The tax multiplier is −MPC/MPS, which is always one less in absolute value than the spending multiplier. Why weaker? Because a tax cut doesn't get fully spent in round one; households save an MPS-sized chunk of it before the chain even starts.
Disposable Income (Unit 3)
MPS is defined on disposable income, meaning income after taxes. In a consumption function like C = 200 + 0.75(Y − T), the 0.75 is the MPC on disposable income, so MPS = 0.25. Taxes change how much income households have to split, not the MPS itself.
Fiscal Policy and Output Gaps (Unit 3 / Unit 5)
When an FRQ gives you an output gap, like Vanderlandia sitting $50 million below full employment, MPS is how you size the fix. Divide the gap by the multiplier (1/MPS) to find the minimum government spending increase needed.
MPS shows up two ways. First, quick conversions. MCQs love asking you to flip between MPC and MPS (if MPC = 0.8, MPS = 0.2) or to pull MPS out of a consumption function like C = 200 + 0.75(Y − T), where MPS = 0.25. Second, multiplier math. A question might say MPS = 0.3 and ask for the spending multiplier (1/0.3 ≈ 3.33) or the GDP effect of a $100 billion tax cut using −MPC/MPS. On FRQs, this is bread and butter. The 2023 FRQ Q1 gave a short-run equilibrium GDP of $500 million against a full-employment level of $550 million and expected you to use the multiplier to find the spending change that closes the gap. Show your work with the formula, because calculation points require it. And memorize MPC + MPS = 1, since questions often give you one and quietly require the other.
They're two halves of the same dollar. MPC is the fraction of an extra dollar of disposable income that gets spent; MPS is the fraction that gets saved, so MPC + MPS = 1. The trap is using the wrong one in a formula. The spending multiplier is 1/MPS (or equivalently 1/(1 − MPC)), while the tax multiplier is −MPC/MPS. If a problem gives you MPS = 0.3 and you compute 1/0.7 instead of 1/0.3, you've mixed them up.
MPS is the fraction of each additional dollar of disposable income that households save, and it always satisfies MPC + MPS = 1.
The spending multiplier equals 1/MPS, so a smaller MPS (less leakage into saving) means a bigger multiplier effect on GDP.
The tax multiplier equals −MPC/MPS and is always one less in absolute value than the spending multiplier, because part of any tax cut is saved before it's ever spent.
You can read MPS straight off a consumption function. In C = 200 + 0.75(Y − T), MPC = 0.75, so MPS = 0.25.
On FRQs, divide the output gap by the multiplier (multiply by MPS) to find how much government spending must change to close the gap, and show the formula for the point.
MPS is the fraction of each extra dollar of disposable income that households save instead of spend. If a household saves $20 out of an extra $100, MPS = 0.2. It's defined in Topic 3.2 alongside the spending and tax multipliers.
Subtract MPC from 1. Since every extra dollar of disposable income is either consumed or saved, MPC + MPS = 1. So if MPC = 0.8, MPS = 0.2.
The spending multiplier is 1/MPS, never 1/MPC. With MPS = 0.3, the multiplier is 1/0.3 ≈ 3.33. Using 1/MPC is one of the most common multiplier mistakes on the exam.
MPC is the spent portion of an extra dollar of disposable income; MPS is the saved portion. They always add to 1, and they play different roles in the formulas. The spending multiplier is 1/MPS, while the tax multiplier is −MPC/MPS.
No, the opposite. A higher MPS means more of each dollar leaks into savings each round of spending, so the multiplier shrinks. MPS = 0.5 gives a multiplier of 2, while MPS = 0.1 gives a multiplier of 10.
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