What are the marginal propensity to consume (MPC) and marginal propensity to save (MPS)? How are the two concepts related? How are the two concepts related to the consumption and saving functions?
What will be an ideal response?
The marginal propensity to consume is the ratio of a change in consumption to the change in income which caused that change in consumption. The marginal propensity to save is the ratio of the change in saving to the change in income which caused that change in saving. The sum of the MPC and MPS for any change in disposable income must always equal 1 because any fraction of a change in income which is not consumed is saved. The MPC is the numerical value of the slope of the consumption schedule and the MPS is the numerical value of the slope of the saving schedule.
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