Explain why the marginal propensity to save and the marginal propensity to consume sum to 1.
What will be an ideal response?
When we write MPC + MPS = 1, we are stating that a change in disposable income will induce a combination of consumption and savings changes that will equal 100 percent of that initial change in disposable income. This is because the Keynesian model assumes that people do two things with their disposable income, spend it or save it. What is not spent is saved.
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Suppose that accountants increase the price for calculating income taxes owed by 20 percent. The short-run demand for their service is less elastic than the long-run demand because in the long run consumers will ________
A) spend less on this service B) experience an increase in income C) try to avoid paying their income tax D) find other ways to calculate the income tax they must pay
Refer to Table 25-2. Suppose a transaction changes a bank's balance sheet as indicated in the following T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank can make a maximum loan of
A) $0. B) $800. C) $7,200. D) $8,000.
Real GDP per capita and other alternative measures of the quality of life are:
a. independent. b. directly correlated. c. poorly correlated. d. inversely related.
Total consumer surplus in a market is measured as the
A) area bounded above the market clearing price and beneath the market demand curve. B) area bounded below the market clearing price and above the market supply curve. C) vertical distance from the horizontal (quantity) axis to the market clearing price. D) horizontal distance from the vertical (price) axis to the equilibrium quantity.