Question

State the relationship between MPC and MPS.

Answer 1

1. Marginal Propensity to Consume refers to the ratio of change in consumption to change in income. MPC = AC / AY.

2. Marginal Propensity to Save refers to the ratio of change in saving to change in income. MPS = ΔS / ΔY.

3. The sum of MPC and MPS is always one and equal to unity. That is MPC + MPS = 1 MPS = ΔS / ΔY.