The standard formula for calculating average propensity to save (APS) is:

APS

=

saving income

Saving Schedule

The average propensity to save is calculated by dividing saving in the second column by income in the first column. Beginning near the top of the schedule, if household income is $1 trillion, then saving is -$0.75 trillion, giving an average saving of -0.75.

Running the numbers through the APS formula gives:

APS

=

saving income

=

-$0.75 $1

=

-0.75

The prime conclusion from a quick look at the numbers is that APS increases as income increases. The APS is -0.75 for $1 trillion of income, then increases to 0.15 for $10 trillion of income. In other words, APS is not constant.

The APS increases due to autonomous saving and induced saving. Autonomous saving is the -$1 trillion of saving that takes place if income is zero. Induced saving is the increase in saving that occurs due to an increase in income.

Because saving is negative when income is zero, saving is necessarily less than income at low income levels, meaning the APS is less than one. Moreover, while saving is induced as income increases. The increase in saving increases the APS from its initial negative value into the positive range.

The average propensity to save is one of four related measures. The other three are average propensity to consume, marginal propensity to save, and marginal propensity to consume.

• Average Propensity to Consume: This is the proportion of household income that is used for consumption. Abbreviated APC, this is really nothing more than average consumption. Together with the average propensity to save, it indicates how a given level of income is divided between consumption and saving.


• Marginal Propensity to Save: This is the change in saving resulting from a change in income. Abbreviated MPS, this indicates the proportion of additional household income that is used for saving. It is the flip side of the marginal propensity to consume, and thus also quantifies the fundamental psychological law. The MPS is the slope of the saving line, which enters into the injections-leakages model. The multiplier is also related to the MPS.


• Marginal Propensity to Consume: This is the change in saving resulting from a change in income. Abbreviated MPC, this indicates the proportion of additional household income that is used for saving. It quantifies the fundamental psychological law and is the most important of these four measures. The MPC is the slope of the saving line, key to the slope of the aggregate expenditures line, and affects the magnitude of the multiplier.