Question

# Define “marginal propensity to consume” (MPC) and “marginal propensity to save” (MPS) in plain English. What...

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

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