The mean propensity to save (PPS) is an economic calculation based on John Maynard Keynes’ theories. In developing countries, PPS tends to be high, while most modern industrialized nations have a low PPS. The marginal propensity to save (MPS) and the average propensity to consume (APC) are related concepts.
The mean propensity to save (PPS) is an economic calculation for countries or individual households of the amount of disposable income saved on a regular basis or the amount of total income saved. The principle is based on economic theories established by John Maynard Keynes, a well-known early 20th-century British economist whose theories, as of 2011, are still widely used by nations and businesses. As income increases, the percentage of the average propensity to save also tends to increase, and as income decreases, ODA also decreases. The reason for this given by Keynes was that the amount of income directly determined savings rates, while many other economists believe that the average propensity to save is instead directly influenced by interest rates in a country and by the increase or decrease in costs of goods and services.
In developing countries with limited consumer markets and generally low incomes, the average propensity to save tends to be high. The most prominent example of this is China, where the saving rate is extremely high both domestically and at the household level, with the country saving nearly 50% of its gross domestic product income in the first decade of the 21st century. century. Most modern industrialized nations have a very low average propensity to save on rates per household, however, with rates as of 2011 in the US at 3.6%, the UK at 5.4% and 3, 2% in Japan. Many reasons affect this savings rate, including the demographics of a population, inflation rates, and unemployment levels. Nations that have been modern still have a relatively high average propensity to save on rates, including Spain with a rate of 17%, Belgium at 13.1% and France at 15.2%.
A concept closely related to the average propensity to save is the marginal propensity to save (MPS), which aims to raise income levels. As an individual’s or nation’s income increases, so does the marginal propensity to save as a percentage of the total. This is another key modifier of the economic theories promoted by Keynes and is a ratio that shows the change in savings rates as the change in income rates increases. China is the most notable example of a high MPS rate, where it exceeded 60% growth during the first decade of the 21st century.
The flip side of savings rates are two other fundamental concepts used in Keynesian economics, which are the average propensity to consume (APC) and the marginal propensity to consume (MPC). If a household’s average propensity to save from disposable income is 5.4% as in the UK, then the average British household has an APC of 94.6% for its disposable income. MPC is also the opposite of MPS and is a ratio based on the change in consumption levels as disposable income changes. Consumption rates are typically high in modern, industrialized nations due to the proliferation of available goods and services and the consumer base at corporations fueling job growth. As income increases, there is less need to spend on more goods and services, so consumption rates typically decrease as a percentage of the total.
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