Question

Define “marginal propensity to consume” (MPC) and “marginal propensity to save” (MPS) in plain English. What must be true about the sum MPC+MPS?

Answer 1

Answer :-

Marginal Propensity To Consume (MPC) :-

The marginal propensity to consume(MPC) is defined as the proportion of extra income that is spent on consumption.MPC in simply states that how likely to spend/ save extra money.

It may also be defined as the ratio of the change in consumption spending to a given change in income.

MPC = ∆Consumption/ ∆Income

Marginal Propensity To Save (MPS) :-

The marginal propensity to save(MPS) is defined as the proportion of an aggregate raise in pay that a consumer spends on saving rather than on the consumption of goods and services.

It may also be defined as the ratio of change in savings and change in income.

MPS = ∆Savings/ ∆Income

Sum of MPC and MPS :-

The Marginal propensities to consume and save show the fractions of any change in total income that are consumed and saved;

MPC + MPS = 1