Explain why the marginal propensity to save and the marginal propensity to consume sum to 1
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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Assuming the economy is represented by the graph shown, if the government were to enact a partially successful expansionary fiscal policy, it would be most likely to move from equilibrium:
A. A to B.
B. B to A.
C. D to C.
D. D to B.
When a firm's demand curve is tangent to its average total cost curve: a. the firm must be operating in a monopolistically competitive market. b. economic profits are zero
c. the firm must be earning economic profits. d. the firm must be incurring economic losses.
Which of the following assumptions is held by both the classical view and the new classical view?
A) rational expectations B) flexible wages and prices C) flexible wages and sticky prices D) adaptive expectations E) a and b
The financial account is
A) the reserve assets created by the International Monetary Fund for countries to use in settling international payment obligations. B) the price of one nation's currency in term of the currency of another country. C) a category of the balance of payments transactions that measures flows of real and financial assets. D) a category of the balance of payments transactions that measures the exchange of merchandise, the exchange of services, and unilateral transfers.