<h2>Marginal Propensity to Save (MPS)</h2>
<p>The <strong>Marginal Propensity to Save (MPS)</strong> is a key concept in macroeconomics, representing the fraction of an additional unit of income that an individual or an economy saves, rather than consumes. It's a crucial factor in understanding how changes in income affect aggregate demand and economic growth.</p>

<h2>How It Works</h2>
<p>MPS is calculated as the change in savings divided by the change in income. Mathematically, it's expressed as:</p>
<table>
<tbody>
<tr>
<td><strong>MPS</strong></td>
<td>=</td>
<td>ΔS / ΔY</td>
</tr>
</tbody>
</table>
<p>where:</p>
<ul>
<li>ΔS is the change in savings</li>
<li>ΔY is the change in income</li>
</ul>
<p>MPS is a diminishing function, meaning that as income increases, the MPS tends to decrease. This is because as income rises, a larger portion of it is spent on consumption, leaving less for savings.</p>

<h2>Why It Matters for Traders</h2>
<p>Understanding MPS is vital for traders as it influences economic indicators and market sentiment:</p>
<ul>
<li><strong>Gross Domestic Product (GDP)</strong>: MPS affects the savings component of GDP, which in turn impacts overall economic growth.</li>
<li><strong>Interest Rates</strong>: Changes in MPS can influence interest rates, as savings drive investment and capital formation.</li>
<li><strong>Market Sentiment</strong>: Expectations about MPS can drive market sentiment and volatility, as traders anticipate changes in economic policy or growth.</li>
</ul>

<h2>Example</h2>
<p>Consider an economy where the initial income (Y1) is $100,000 and savings (S1) are $10,000. If income increases to $110,000 and savings rise to $15,000, the MPS can be calculated as:</p>
<table>
<tbody>
<tr>
<td><strong>MPS</strong></td>
<td>=</td>
<td>($15,000 - $10,000) / ($110,000 - $100,000)</td>
<td>= 0.5 or 50%</td>
</tr>
</tbody>
</table>
<p>This means that for every additional dollar earned, 50 cents is saved, and 50 cents is consumed.</p>

<h2>Key Takeaways</h2>
<ul>
<li>The <strong>Marginal Propensity to Save (MPS)</strong> is the fraction of an additional unit of income that is saved.</li>
<li>MPS is a diminishing function, meaning it decreases as income increases.</li>
<li>MPS influences economic indicators like GDP and interest rates, making it a crucial concept for traders to understand.</li>
</ul>