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

define the marginal propensity to consume (MPC). Do you think
the MPC has risen or fallen since the start of the COVID-19
pandemic? Explain your reasoning.

How are marginal propensity to Consume and marginal Propensity
to Save calculated?

Use the Marginal Propensity to Save (MPS) to explain the
‘paradox of thrift’.

4. [Marginal Propensity to Consume] Find the marginal propensity
to consume (MPC = dC/dY) for each of the following consumption
functions.
(a) C = C0 +bY, C0 = 1500, b = 0.6.
(b) C = 1200+0.75Yd, Yd = Y ?T, and T = 100.
(c) C = 2000+0.8Yd, Yd = Y ?T, and T = 300+0.1Y.

To represent the consumption function through algebra, it would
be expressed as___. A)C=a + MPC*Y, where a is autonimous
consumption(the amount of consumption expenditure when Y=0), MPC is
the marginal propensity to consume, and Y is national income. B)MPC
+ MPS = 1, where a MPC is the marginal propensity to consume and
MOS is the marginal propensity to save. C) C= a+ MPS*Y,where a is a
autonimous consumption( the amount of consumption expenditure when
Y= 0), MPS is the...

In a closed economy, the marginal propensity to save increases
and tax rates remain unchanged. What effect will this have on the
marginal propensity to consume and on the multiplier? Assume that
the MPS increases from 1/3 to 1/4 and tax rate is 0.20.

Suppose a family's annual income is $58,000; if the marginal
propensity to save (MPS) is 0.25, and the income for the family
decreases by $15,000, then the decrease in consumption will be
Select one:
a. $3,750.
b. $10,500.
c. $11,250.
d. $1,500.

Where marginal propensity to consume is denoted as MPC, consider
the following:
a. Assuming no crowding-out and MPC = 0.75, calculate the amount of
government spending needed to bring this economy back to
full-employment output.
b. Assuming no crowding-out and that $10 billion would be needed to
bring this economy back to full-employment output, calculate the
MPC in this economy.

~Explain the marginal propensity to consume & save.
~List & explain the reasons why investment is unstable.
~Explain the multiplier effect & how the multiplier is
computed.

Keynesian model:
1. Define the multiplier
2. Let the marginal propensity to consume = .9; what is the
effect of increasing Investment spending by 50?

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