Asked by Lauren Danner on Apr 27, 2024
Verified
The sum of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) equals:
A) 0.5.
B) the multiplier.
C) the slope of the consumption function.
D) 1.0.
E) the slope of the saving function.
Marginal Propensity
The fraction of an additional unit of income that is spent on consumption rather than being saved.
Consumption Function
The relationship in the economy between consumption and income, other things constant.
Saving Function
The relationship between the level of saving and the level of income, typically showing that saving increases as income increases.
- Absorb the fundamentals of the marginal propensity to consume (MPC) and the strategy for its calculation.
- Learn about the marginal propensity to save (MPS) and its significance.
Verified Answer
RM
rebecca mironchukApr 29, 2024
Final Answer :
D
Explanation :
By definition, the marginal propensity to consume (MPC) is the change in consumption divided by the change in income, and the marginal propensity to save (MPS) is the change in saving divided by the change in income. Therefore, MPC + MPS = (change in consumption/change in income) + (change in saving/change in income) = (change in consumption + change in saving)/change in income = change in income/change in income = 1. Therefore, the correct answer is D) 1.0.
Learning Objectives
- Absorb the fundamentals of the marginal propensity to consume (MPC) and the strategy for its calculation.
- Learn about the marginal propensity to save (MPS) and its significance.