The relationship between marginal propensity to save (MPS) and income is not straightforward.
MPS is the proportion of an additional dollar of income that a household saves. It is calculated as the change in saving divided by the change in income.
While it's often assumed that MPS increases with income, this isn't always the case. In reality, the relationship is more complex and depends on various factors, including:
- Consumer behavior: People with higher incomes might have a higher MPS because they have already met their basic needs and can afford to save more. However, some individuals might increase their spending on luxury goods and services as their income grows, leading to a lower MPS.
- Life cycle factors: People in different stages of life have different saving patterns. For example, young adults might save less while paying off student loans and building a career, while older individuals nearing retirement might save more to ensure financial security.
- Economic conditions: During periods of economic uncertainty, consumers might save more out of fear of job losses or income instability, regardless of their income level.
Therefore, while MPS might increase with income for some individuals or in certain economic circumstances, it's not a universal rule. It's important to consider individual and macroeconomic factors when analyzing the relationship between MPS and income.
